Global minimum tax, and America’s message to the world: Trust us — as if

From a distance, it looks like a dirty trick.

The United States leads the world into a negotiation for a global minimum tax. Eventually, painfully, everyone agrees to a complicated, finely-balanced pact that would ensure big multinational corporations all pay at least 15 per cent in taxes.

The goal is a global level playing field and an end to the tax-slashing race to the bottom to attract business.

At the last moment, the U.S. demands and is granted exemptions for its own — the biggest, most powerful companies in the world. And 147 other countries are left wondering whether the pact they’re signing is worth the paper it’s written on.

But sign, they do — mainly to salvage what they can from years of arcane wordsmithing in the hopes of preserving their own tax bases and sidelining global tax havens.

It’s come to this.

While many countries had long decried multinational companies’ crafty use of the low- or no-tax rates in some jurisdictions, the campaign to end tax avoidance took a major leap forward in 2021 when then-U.S. Treasury Secretary Janet Yellen threw her considerable influence behind gritty discussions at the Organization for Economic Cooperation and Development.

Canada’s then-finance minister Chrystia Freeland was a close ally, agreeing wholeheartedly with Yellen that a worldwide floor for corporate tax would stymie a global race to the bottom, allow Canada to maintain its corporate tax base and benefit workers with a fairer tax system.

But Canada also hedged its bets, just in case the complex OECD talks didn’t work out. Freeland announced a parallel Digital Services Tax to target large, multinational digital companies active in Canada. As the global talks stumbled, Canada enacted the DST in 2024, making it retroactive to 2022.

As we know, that plan never materialized — going toe-to-toe with Trump’s agenda and losing. And it’s that altercation which can explain the compromises that led to today’s arrangement.

The key moment was last June, just as the DST was about to take effect.

Trump showed up at the G7 summit in Kananaskis, Alta., armed with the dreaded Section 899 of the One Beautiful Bill Act — also known as the “revenge tax.” Countries that embraced the global minimum tax agreement, and especially those who adopted their own DSTs, would face retaliatory high tax rates on individuals making money in the United States.

Under intense pressure from their business communities, the G7 stood down, Canada nixed its DST, and the G7 instead offered up a special arrangement for American companies. Trump removed the revenge tax provision, and the U.S. returned to the global minimum tax table.

And here we are, telling ourselves we’re lucky that the U.S. agreed to anything at all.

The so-called side-by-side agreement announced this month is designed to recognize U.S. arguments that its corporate tax system is fine as it is since it already mirrors what everyone else has signed on to in the main agreement. It doesn’t recognize the U.S. by name, but they’re the only ones who qualify.

Treasury Secretary Scott Bessent hailed it as “a historic victory in preserving U.S. sovereignty and protecting American workers and businesses from extraterritorial overreach.”

It may be a side quest for the U.S., but there are significant implications for the rest of the world — especially since the severe disruption in the global economy means Canada and many other countries are parched for investment and are actively redesigning their investment incentives to be more aggressive.

To be sure, the new package gives Canada some stability as it goes about the hunt for private-sector dollars. And perhaps, if the overall agreement works as intended, tax haven countries will rein in their competitive tax-slashing.

But the side deal gives leeway to the U.S. to decide for itself, at least in some instances, what counts and what doesn’t in the calculation of tax. And it leaves Big Tech and other American corporations alone to continue as they have been, booking up to half their foreign profits in tax havens, according to the EU Tax Observatory.

Meanwhile, the overall deal that Canada is signing on to means tax is no longer much of a tool to attract investment. We do have other, more effective tools — subsidies, predictability, rule of law, and industrial policy writ large. It could be a lot worse.

But it’s not clear the Americans will constrain themselves accordingly. The understood message from America is: trust us.

As if.