Finance ministers from the Group of Seven (G7) countries reached a landmark agreement on Saturday to introduce a global minimum corporate tax rate of at least 15%.
In a joint statement, the G7 finance ministers said the tax rate would be used to target "the largest and most profitable multinational enterprises".
United States Secretary Treasury Janet clarified in a press conference that this would apply to the likes of Amazon and Facebook.
"It will include large profitable firms, and those firms, I believe, will qualify by almost any definition," she said.
Yellen added the agreement would "end the race-to-the-bottom in corporate taxation and ensure fairness for the middle class and working people in the US and around the world".
"The global minimum tax would also help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our work forces and investing in research and development and infrastructure. And indeed the global minimum tax can help fund investments in those critical priorities," she said.
"Finally, by collaborating with one another on the global minimum tax, governments protect their national sovereignty to set tax policy, because the pressures that have forced the race to the bottom on corporate tax rates are alleviated."
Facebook's global affairs vice president Nick Clegg took to Twitter to welcome the announcement.
"Facebook has long called for reform of the global tax rules and we welcome the important progress made at the G7. Today's agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system," he wrote in a tweet.
"We want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places."
Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States make up the G7 nations.
The work by the G7 finance ministers form part of a broader, existing effort worldwide to prevent multinationals from shifting profits offshore to avoid paying tax.
In April, US President Joe Biden laid out his corporate tax reform plans, vowing the tax rate in the US would be raised from 21% to 28%. A week later, Yellen said the US would work with other G20 countries to set a minimum corporate tax rate.
The two-pillar approach is one of nexus and profit allocation and another of ensuring a minimum level of taxation.
The OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) brings together 137 member jurisdictions. It states that both pillars combined could increase global corporate income tax revenues by about $50-$80 billion per year.
G20 finance ministers said they were committed to further progress on both pillars and urged the Inclusive Framework to address the remaining issues with a view of reaching a global and consensus-based solution by mid-2021.
As part of next steps, the G7 finance ministers said they will meet with the G20 finance ministers and central bank governors next month to see whether its agreement can gain broader support from other countries.
"We agree on the importance of progressing agreement in parallel on both pillars and look forward to reaching an agreement at the July meeting," the G7 finance ministers stated.
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