G7 nations announce their support for a global corporate minimum tax rate of 15%

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On Saturday, the finance ministers from G7 nations announced their support for a global corporate minimum tax of 15%, which would require companies to pay at least a 15% rate in each country they operate in. It represents one of the biggest attempts to bring an outdated global tax system from black-and-white into Technicolor.

The backstory: Multinational companies have been taking advantage of existing tax rules by shuffling money between jurisdictions with super-low rates. The IMF estimates that 40% of all foreign direct investment is "phantom" in nature, meaning it's money that passes through empty corporate shells, often for the purposes of lowering a company's tax bill.

This scheming is not in the best interests of countries that want to collect more taxes from large corporations. The Biden administration estimates a global minimum tax system would lead to $500 billion in additional tax revenue for the US over the next decade.

But wait, there's more

In addition to the 15% minimum tax, the agreement by the G7 (which, by the way, is composed of Canada, France, Germany, the US, Italy, Japan, and the UK) calls for an extra tax on profits from the "largest and most profitable multinational enterprises."

The provision is meant to address European leaders' concerns that they can't sufficiently tax tech giants like Facebook and Google, because while those companies make tons of money in Europe, they are based in the US and pay taxes there.

Now comes the hard part

The G7 ministers will have to sell their plan to other countries, such as Ireland, that oppose the 15% minimum tax. Ireland has managed to attract lots of tech jobs due to its low corporate tax rate of 12.5%, and it won't want to give up that competitive advantage.

Zoom out: The teamwork shows that the US and its European allies are putting some of the bad blood of the Trump years behind them. But any new tax system will take years to implement and will surely create headaches of its own.

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