The US Treasury Department recently reached an agreement with other Group of Seven (G7) countries that previously agreed global minimum taxes would not apply to US companies. The G7 governments have relented, succumbing to strong pressure from President Donald Trump and lobbying efforts from transnational corporations – including those in Washington, London and Brussels. Similarly, India has already relented on taxing the digital economy, and now, unfortunately, Canada has followed suit.
Several years ago, the international community acknowledged that too many global companies are not paying the fair taxes they owe, and some of them are not paying taxes at all in the countries where they actually do business. In 2021, through the work of the OECD/G20 Inclusive Framework to Combat Base Erosion and Profit Shifting, a comprehensive agreement was reached consisting of two pillars. However, only the second pillar - the part on a global minimum corporate tax - was approved. (The first part of the agreement concerned the redistribution of taxing rights among countries and was opposed by developing countries and the United States.)
Although there was a global consensus on the need for such a minimum, the American version, adopted during Trump's first term, was weaker than the rest of the world's. Transnational companies were allowed to "offset" savings made in tax havens through "additional payments" in the US or other high-tax jurisdictions.
The second part of the agreement was not ideal, but it represented the first attempt to introduce a minimum tax rate of 15% on the profits of transnational corporations worldwide, an important step towards ending harmful tax competition between countries.
Of course, there were exemptions and reliefs that brought the effective rate down to just under 15%. Moreover, the 15% rate was lower than what many developing countries already had. The rate should have been higher, and the exemptions fewer. However, agreement on the second component of the agreement stopped a damaging race in which countries offered the lowest tax rates to attract business to their jurisdiction. On a global scale, this race did not bring much new investment; the real beneficiaries were wealthy corporations that kept the money they saved on taxes that in some countries they barely paid.
And so, once again, the G7 governments have decided to put the interests of international companies above those of developing countries, small and medium-sized enterprises (which cannot benefit from schemes that bring huge profits to transnational corporations), and even above the interests of their own citizens, who will end up having to pay higher taxes. Thanks to the exemption of US transnational companies from the second part of the agreement, some of them will still be able to pay corporate tax at zero or near-zero rates, registering those profits in low-tax jurisdictions or in tax havens such as Puerto Rico and the Cayman Islands. As a result, their competitiveness compared to non-US companies will increase.
Modern multinational companies are willing, however, to move their nominal headquarters to wherever they are offered the most favorable tax regime (and other benefits), even if their actual economic activity takes place in other countries. That is why granting preferential treatment to American companies will encourage companies from other countries to transfer their official headquarters to America. This is another sad example of the harmful race to lower taxes.
By giving in to US demands, the G7 risks undermining the global process of introducing a minimum tax. It has already rendered the inclusiveness of the so-called OECD/G20 Inclusive Framework meaningless.
The new global rules were claimed to have been developed by a collective effort of more than 140 countries. In reality, many developing countries complained that the agreement was unfair to them, and that powerful countries had ignored their concerns. Now that facade has fallen. Non-G7 countries, including dozens of developing countries, are now being asked to approve without debate a decision imposed by a single country.
The second pillar of the agreement needs to be strengthened, not weakened. It currently applies only to large international companies (with global revenues of at least €750 million), while the global minimum tax rate - 15% - is set at a very low level. The Independent Commission on the Reform of International Corporate Taxation (ICRICT) has long advocated a minimum rate of at least 25%.
According to some estimates, a minimum tax (the second pillar) could increase annual global corporate tax revenues by $155 billion to $192 billion. While this is a significant sum, a minimum rate of 25% would generate additional revenues of more than $500 billion annually. In a world where the crises of inequality, climate change, and chronic underfunding of public services are intertwined, wasting such significant resources is fiscally irresponsible and morally unacceptable.
The second pillar was a starting point - a global corporate tax floor, which could stop the harmful race to the bottom and at least partially revive tax justice. The G7 agreements, which allow American transnational corporations to "avoid obligations", undermine even this modest achievement. It sends a bad signal to the rest of the world.
Just two weeks ago, a global consensus was reached at the United Nations on the need to strengthen international tax cooperation and introduce progressive tax systems. Most countries voted to continue negotiations on the UN Framework Convention on International Tax Cooperation. However, the US government recently refused to participate in these negotiations, stating that the objectives of the proposed convention "are not consistent with US priorities and constitute unwanted interference".
When the draft “Seville Commitments,” the outcome document of the Fourth International Conference on Financing for Development (FfD4), was adopted in Spain last week, the United States was the only major country to opt out. Allowing the United States to circumvent even the already lenient rules of Part II of the agreement not only weakens multilateralism but also violates previously made commitments, further exacerbating inequality in global tax governance.
The OECD/G20 Inclusive Framework should reject the G7 agreement. America must not be allowed to dictate global policy. It is a powerful country, but its share of world GDP is less than 20%.
The countries gathered in Seville for the FfD4 conference can either accept that America is sabotaging any attempt to tax transnational companies fairly, or they can intensify work on establishing a new international tax architecture under the auspices of the UN - a system that will benefit everyone.
In the interest of the world economy and people around the world, they should choose the latter option.
JE Stiglitz is an American economic expert and Nobel Prize winner in economics; he is a professor at Columbia University;
JA Ocampo is a professor at Columbia University and a member of the UN Committee on Development Policy;
J. Ghosh is a professor of economics at the University of Massachusetts at Amherst.
Copyright: Project Syndicate, 2025. (translation: NR)
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