By David Lawder

WASHINGTON, (Reuters) – The U.S. Treasury proposed Monday a new method to enforce a global 15% corporate minimum tax that was agreed upon last year by 136 nations. This includes denying deductions of taxes paid in countries with lower rates.

In budget documents, released Monday by the Treasury, it was stated that the new Undertaxed Profits Rule that President Joe Biden proposed to replace the U.S. Base erosion Anti-Abuse Tax(BEAT) would be replaced with a system that acts as a “top-up” tax that ensures multinational corporations pay a tax rate at minimum 15%.

The Organization for Economic Cooperation and Development’s (OECD), reached a global minimum-tax deal that aims to stop a downward competition in corporate rates and an erosion in government revenues. This is while denying tax-haven economies any benefits.

The Treasury proposal rules would allow for additional revenue. Companies could not be deducted if they have a rate of tax below 15%. This is a key point, according to a U.S. Treasury official.

According to the “model rules”, this new plan is compatible with last December’s global minimum tax. In the global tax agreement, the countries have agreed that they will bring their laws up to date with the 15% global minim tax in 2022. The global tax deal is expected to become effective in 2023.

Official said Treasury would work with Congress to develop legislation that could preserve U.S. tax credit and other incentives for American businesses.

In its Revenue Proposals, the Treasury stated that entities earning more than $850,000,000 in annual global revenue would be subject to the Undertaxed Profits Rule.

The BEAT tax, a type of alternative minimum tax that currently applies to manufacturing companies, puts them at disadvantage. It was suggested that the new proposal address the costs of selling goods more fully.