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The tax agreement agreed by major world advanced countries over the weekend is the first key evidence that international cooperation has been revived since President Joe Biden brought the U.S. to the negotiating table. However, there is a long way to go before it can be implemented.
“This is the starting point,” said French Finance Minister Bruno Le Maire, who promised that “in the coming months we will fight to keep this tax rate on minimum companies as high as possible.”
The agreement aims to close the loopholes that multinationals have used to reduce tax bills, ensuring that they pay more in the nations in which they operate.
G7 ministers favored a global minimum rate of at least 15 per cent and agreed that countries should be entitled to the highest profit and the most taxable multinationals and the right to tax a certain proportion where it arises.
However, they were left undecided on the wider global negotiations that are taking place between the 139 countries of the OECD in Paris. The first hurdle facing the G7 deal is winning the support of the G20 national team, which will meet in Venice next month.
While the OECD calculations proposals could generate an additional $ 50 billion and $ 80 billion in revenue per year, the amount of which will vary drastically depending on the technical details of the latest global agreement.
Two factors will have a particular impact: whether the rate set at a minimum and whether the countries that set the minimum can charge revenue generated in countries that do not. The scale of the overall impact is particularly sensitive with this last point, known as the “mix of jurisdiction” or “country-by-country increase”.
NGOs criticized the 15 per cent minimum as very low; The UK think tank IPPR said it was “not enough to finish the race to the bottom”.
But Gabriel Zucman, an economist at the University of California at Berkeley, known for his work on tax havens, tweeted that the deal was “historic, inadequate and hopeless” – although it was 15 percent low, there was no higher barrier rate.
The minimum rate “reduces incentives for multinational companies to conserve profits in tax havens,” he said, but added that minimizing cooling is “essential for every country,” because companies can use it otherwise. tax havens to offset fees are higher than 15 percent elsewhere.
The consensus in the G7 talks between ministers and officials did not mean that the world agreed on changes to international taxes, let alone that the plan would eventually succeed. Instead, it was raised as an ambitious attempt to boost momentum in global dialogue.
This was recognized by other countries. Irish Finance Minister Paschal Donohoe joined the G7 ministers in London, although he defended his country’s 12.5 per cent rate.
After the announcement, he wrote this tweet: “I look forward to participating in the discussions now [the] ELGA. . . Any agreement must meet the needs of developed and developed countries and small and large developing countries. “
Global talks need to unify countries ’competition priorities into two elements known as“ pillars ”.
First, the most important in the UK, France and Italy, the world’s largest companies – especially the US digital giants Facebook, Google and Apple – will pay more in their countries, even if they have a small physical presence there.
Rishi Sunak, the chancellor of the UK, said the G7 agreement ensures that “the right companies pay the right tax in the right places”, a reference to the first column.
In contrast, U.S. Treasury Secretary Janet Yellen did not mention this in the prepared notes, based on the second column: a global minimum rate of “at least 15%”. This would generate more revenue for the federal government in Washington.
The former requires a global agreement and U.S. legislation to be passed by Congress, and the latter, which the OECD believes will get the most additional revenue, can be implemented unilaterally, but would work better if many countries were included.
One column has strong opposition in Washington. France, Italy and the United Kingdom are refusing to eliminate their digital taxes until the US passes the relevant legislation. Canadian Finance Minister Chrystia Freeland said she intended to introduce a digital tax in her country after the G7 agreement was announced.
Beyond these principled problems, many technical questions remain unanswered, which can make a big difference in the practical implications of an agreement – in which areas the company would enter and how to define the tax base.
“While the rates of incumbents are important, the competition is likely to continue at the tax base level. This could be more confusing,” said Rita de la Feria, a professor of tax law at Leeds University.
Asked how he would sell the deal to U.S. lawmakers, Yellen said it would “provide a level of certainty to what corporations in the U.S. and around the world will operate in and that environment has been highly volatile.”
And himself praised “Reviving Multilateralism.”
Some ministers privately said the need to reach an agreement in the G7 was to prove that rich countries were still important, trying to show the world that the rules set by China in the 21st century would not prevail.
The West wants to regain control of the global agenda by reaching agreements on conflicting policy areas, four years after Trump made it impossible, ministers said in both the public and private sectors.
“What I’ve seen in this G7 [meeting] it’s a deep collaboration and a desire to coordinate and address a much wider range of issues around the world, ”Yellen said.
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