EXPLAINER: How global deal stems corporate use of tax havens

FRANKFURT, Germany (AP) — More than 130 countries have forged a deal on sweeping changes in how big global companies are taxed.

The goal: deterring multinational companies from stashing profits in countries where they pay little or now taxes — better known as tax havens.

The sweeping agreement was struck Friday among 136 countries after talks overseen by the Organization for Economic Cooperation and Development. It would update a century's worth of international taxation rules to cope with changes brought by digitalization and globalization.

The most important feature: a global minimum tax of at least 15%, a key initiative pushed by U.S. President Joe Biden and Treasury Secretary Janet Yellen. Yellen said the minimum tax will end a decadeslong “race to the bottom” that has seen corporate tax rates fall as tax havens sought to attract corporations that take advantage of low rates — but do little actual business in those locations.

Here's a look at key aspects of the deal:

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WHAT PROBLEM DOES IT ADDRESS?

In today's economy, multinationals are increasingly likely to earn profits from intangibles such as trademarks and intellectual property. Those can be easy to move, and global companies can assign the earnings they generate to a subsidiary in a country where tax rates are very low.

Some countries compete for revenue by using rock-bottom rates to lure companies, attracting huge tax bases that generate large revenue even when tax rates only marginally above zero are applied. Between 1985 and 2018, the global average corporate headline rate fell from 49% to 24%. By 2016, over half of all U.S. corporate profits were booked in seven tax havens: Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore, and Switzerland. That costs the U.S. Treasury $100...