Over the weekend, largely spurred on by Treasury Secretary Janet Yellen, finance ministers from the Group of 7 – the major advanced economies – agreed to set a minimum tax rate of 15% on the profits of foreign affiliates of multinational companies. You might be wondering what this is or why you should care.

So let me tell you about Apple and the Elves.

Apple Inc. has a broad global reach. Its products are sold almost everywhere; it has subsidiaries in several countries. It is also, of course, extremely profitable.

But where are these benefits gained? Apple does very little manufacturing, mostly outsourcing production to other companies, mostly in China. Much of its profits come from licensing rights, reflecting the company’s intangible assets – its patents, trademarks, brands and trade secrets. And where are these intangible assets located? From an economic point of view, this is not even a significant question.

For tax purposes, however, Apple has to report its profits somewhere. Right now, that means it’s basically up to Apple to declare where it makes its money – and what it does, of course, is claim its profits go to subsidiaries in low-rate countries. tax on these profits, Ireland in particular.

In fact, until 2014 it went even further: much of its global profits were attributed to Apple Sales International, which was registered in Ireland but, for tax purposes, was not located anywhere. In 2015, however, a combination of pressure from the European Commission and changes in Irish tax laws prompted Apple to reallocate many of its intangibles to its usual Irish subsidiary.

How big of a deal was that? On paper, Ireland’s gross domestic product suddenly jumped 25%, even though nothing real had changed – a phenomenon I have dubbed ‘pixie economy’, a term that has stuck. (Fortunately, the Irish have a good sense of humor.)

The point is, Apple is far from alone in exploiting its multinational status to avoid taxes, and Ireland is far from the most blatant tax haven, even in Europe.

According to figures from the International Monetary Fund, Luxembourg – which has roughly the same population as Vermont – has attracted more than $ 3 trillion in foreign investment, roughly comparable to the total of the United States as a whole. . What is it about? Almost no real investment is involved; instead, the little duchy has offered many companies deals whereby they can report their profits there while paying next to nothing in taxes.

So what do we learn from these stories? First, that the current international tax system offers enormous opportunities for corporate tax avoidance.

Second, we learn that when nations try to compete with each other by lowering corporate tax rates – the so-called race to the bottom – they aren’t really fighting over who will get productivity-enhancing jobs and investments. There is very little evidence that cutting income taxes actually incentivizes companies to build factories and expand employment.

No, they are really fighting over where the profits will be declared and therefore taxed. And with the drop in tax rates and the rise in tax evasion, the result is that tax revenues keep falling.

In the 1960s, federal corporate income taxes averaged about 3.5% of GDP; now they are on average around 1%. That’s a loss of income of over $ 500 billion a year, enough to pay for a lot of infrastructure, child care and more.

Which brings us to this G7 agreement. How would the minimum rate of 15% work? Here’s how Gabriel Zucman – who arguably has done more than anyone to stress the importance of international tax evasion – sums it up: “Take a German multinational that has income in Ireland, taxed at an effective rate of 5%. Germany will now collect an additional tax of 10% to arrive at a rate of 15% – same for the profits recorded by German multinationals in Bermuda, Singapore, etc.

Obviously, this would immediately reduce the amount of tax that corporations could avoid by shifting reported profits to tax havens. And it would also drastically reduce the incentive for countries to serve as tax havens in the first place. Oh, and if you think businesses can avoid all of that just by moving their parent companies to, say, Bermuda, the big economies can make that difficult.

To put this in a larger context, what we are examining here is the start of an attempt to fix a system that is rigged against workers in favor of capital. Workers have little means to avoid income taxes, payroll taxes, and sales taxes besides moving to another country. Multinational corporations, which ultimately are largely owned by a small, wealthy minority, may seek out low-tax jurisdictions without doing anything real except hiring qualified accountants. The G7 plan would put an end to this practice.

So far, of course, all we have is an agreement between the finance ministers, with a few important details yet to be worked out. It will not be easy to make it a law: companies can hire lobbyists as well as accountants.

But it’s still a big deal – a big step towards a more just world.