Senior finance officials representing most of the global economy have backed a sweeping overhaul of international taxation that includes a global minimum 15% corporate levy to deter large corporations from resorting to low-rate tax havens.
Group of 20 finance ministers approved the plan at a meeting in Venice on Saturday.
US Treasury Secretary Janet Yellen said the proposal would end “self-defeating international tax competition” in which countries have for years lowered rates to attract business. She said it was âa race that no one has won. What it did instead was deprive us of the resources we need to invest in our people, our workforce, our infrastructure. “
Next steps include more work on key details at the Paris-based Organization for Economic Co-operation and Development, followed by a final decision at the Group of 20 Presidents and Prime Ministers meeting on October 30-31 in Rome. .
Italy hosted the finance minister’s meeting in Venice as it holds the rotating presidency of the G-20, which represents more than 80% of the global economy.
Implementation, scheduled for 2023, would depend on action at the national level. Countries would introduce the minimum tax requirement into their own laws. Other parts might require a formal treaty. The draft proposal was approved on July 1 in talks among more than 130 countries convened by the OECD.
The United States already has a minimum foreign income tax, but President Joe Biden has proposed to roughly double the rate to 21%, which would be more than in line with the proposed global minimum. The rate hike is part of a larger proposal to fund Biden’s jobs and infrastructure plan by raising the domestic corporate tax rate from 21% to 28%.
Yellen said she was “very optimistic” that Biden’s infrastructure and tax laws “will include what we need for the United States to comply” with the minimum tax proposal.
Republicans in Congress have expressed opposition to the measure. Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee on Fiscal Drafting, lambasted the OECD agreement, saying: “This is an economic capitulation to China, Europe. and the world that Congress will reject.
The international tax proposal aims to deter the world’s largest companies from using accounting and legal schemes to shift profits to countries where little or no tax is due – and where the business can do little or no real business. Below the minimum, companies that evade taxes abroad would pay them at home. This would remove the incentives to use or create tax havens.
From 2000 to 2018, US companies made half of all foreign profits in seven low-tax jurisdictions: Bermuda, Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore, and Switzerland.
A second part of the tax plan is to allow countries to tax a portion of the profits of companies that make profits without a physical presence, such as through online retailing or digital advertising.
This part came after France, followed by other countries, imposed a digital services tax on US tech giants such as Amazon and Google. The US government views these national taxes as unfair trade practices and stands the threat of retaliation against imports from these countries to the United States through higher import taxes.
Under the tax deal, these countries would have to drop or refrain from national taxes in favor of a single global approach, thereby theoretically ending trade disputes with the United States.
US tech companies would then be faced with only one tax regime, instead of a multitude of different national digital taxes.