Limits Tax Competition
The floor is intended to reduce incentives for countries to compete by cutting corporate tax rates ever lower. Supporters say it protects national tax bases; critics say it constrains U.S. tax policy choices.
In plain English
When countries agree on a tax floor.
It's an international deal designed to keep big multinational companies from avoiding taxes by shifting profits to very low-tax countries.
Simple example
Under the agreement, if a multinational headquartered in a participating country pays less than 15 percent on profits booked in a low-tax jurisdiction, another country can collect a top-up tax to bring the total to 15 percent.
Why it matters
What the term actually changes.
Affects U.S. Debate
The 15 percent floor shapes the practical range of any U.S. corporate rate change, because rates well below the floor could trigger top-up taxes abroad on U.S.-based multinationals.
How it works
The mechanics, in practice.
Country-By-Country Test
Multinationals calculate their effective tax rate in each country where they operate. If it falls below 15 percent, additional tax can be collected by the company's home country or other participating jurisdictions.
National Implementation
Each country must pass its own laws to implement the agreement. The European Union, United Kingdom, Japan and others have enacted versions of the rules, while the U.S. has not adopted the full framework.
Related guide
How does the federal corporate income tax work?
A look at how the United States taxes corporate profits, how the rate has changed, and what's at stake in the debate over raising it.
Read the guide → Related issue brief
Should the federal corporate income tax rate be raised?
Lawmakers and economists remain divided over whether to lift the 21 percent corporate rate set by the 2017 tax law.
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