Finance ministers meet in Venice to finalize global tax deal


VENICE, Italy – The world’s top economic leaders meet on Friday to discuss crucial details of what would be the biggest overhaul of the international tax system in a century, kicking off a three-month race to secure a deal by the end of the year.

Gathered in this former hub of international trade, the finance ministers of the Group of 20 countries are moving forward with plans to end global tax havens and force multinational corporations to pay an appropriate share of tax everywhere. where they operate. The negotiations, which will have far-reaching ramifications for the finances of global companies, have continued for much of the past decade and are entering what officials hope will be the home stretch.

“A few big weeks and months are ahead,” said Pascal Saint-Amans, director of the center for fiscal policy and administration at the Organization for Economic Co-operation and Development, which oversees the talks, in a brief interview before. the top.

The meetings follow a breakthrough in negotiations that took place last week when 130 countries backed a conceptual framework for the new tax plan. The plan includes a global minimum tax of at least 15% that each country would adopt and new rules that would force tech giants like Amazon and Facebook and other big global companies to pay taxes in countries where their assets or services are sold even if there is no physical presence.

A Treasury official said on Friday that Peru, which did not initially join the OECD agreement, had signed it, making it 131 countries supporting the plan.

The changes to the global tax system would generate an additional $ 150 billion in global tax revenue per year, according to OECD estimates, and transfer tax rights of over $ 100 billion in profits to different countries. Officials hope to secure a deal by October, when leaders of the G20 countries return to Italy for the last summit of the year.

The stakes in meeting this deadline are high, especially for the United States. The deal aims to end a cascade of taxes on digital services that many countries around the world, including Britain, France and Italy, are adopting to capture more tax revenue from U.S. tech companies. The United States has called these taxes discriminatory and the Biden administration has approved retaliatory tariffs on wine, cheese, clothing and other products from those countries which could come into effect later this year if a deal is not reached.

The United States wants European countries to remove taxes on digital services immediately, but policymakers have suggested they could stay in place until a new deal is fully enacted, which could take years. .

The European Union is also moving forward with a new digital tax even as OECD tax negotiations advance. Treasury Secretary Janet L. Yellen is expected to urge her European Union counterparts to delay such a decision when she visits Belgium next week at the end of her trip to two countries.

Other outstanding issues remain to be resolved over the weekend and in the months to come, including getting low-tax countries like Ireland to sign the deal as well as the exact rate at which global companies would face.

The United States and France would like the global tax to be higher than 15%. Bruno Le Maire, France’s finance minister, said on Friday he would push for an increase in the minimum tax.

“It must be a revolutionary agreement,” Le Maire told reporters in Venice. “This is why France is going to advocate for a global minimum tax on companies higher than 15%, because it is the first time that we can really put an end to the race to the bottom of international taxation, which is clearly a dead end for all of us. “

Mr. LeMaire did not specify what rate France would charge. The country has one of the highest corporate tax rates in Europe, at 33.5%, although the effective rate paid by businesses is much lower.

Raising the minimum tax above the 15% rate proposed by the Biden administration would allow the creation of “new finance for the fight against climate change,” LeMaire said. “So I am convinced that even though there are different points of view among the G20 member states, we can reach an agreement. He added that France would put “all our pressure, all our impetus to obtain this breakthrough”.

Mr Saint-Amans said he believed reluctant countries like Ireland would join the deal if the United States was able to push the reforms through Congress – which he acknowledged was not not guaranteed. Republican lawmakers have expressed some skepticism about the global minimum tax, in part because they see it as a workhorse for the Biden administration to raise the corporate tax rate in the United States.

President Biden linked his proposal to increase the corporate tax rate in the United States to 28% from 21% to a global minimum tax, saying it would deter companies from simply moving their operations overseas . Republicans, who cut the corporate rate from 35% to 21% in 2017, said they would oppose any changes to these tax cuts.

Treasury officials have expressed confidence that the global tax can pass the course in the United States. But officials did not say whether the White House believed it should win the support of reluctant Republicans or whether they could push the tax changes through Congress only with Democrats’ votes. Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee, told reporters this week he believes the Biden administration’s proposed tax review would be dead when he came to Congress.

“I think first of all this is an economic capitulation that other countries are happy to accept, as long as America makes itself so uncompetitive,” Brady said. “And second, I think there are too many competing interests here for them to finalize a deal that would be acceptable to Congress.”

Other nations must also determine how to transform their commitments into domestic law.

Mechanisms for changing the way the biggest and most profitable companies are taxed and the exceptions for financial services, oil and gas companies will also be at the heart of the discussions. Some already fear that the exclusions will lead to new tax loopholes.

Taxation is not the only issue on the agenda this weekend. Ms Yellen will work with her international counterparts on a plan to provide more assistance to developing countries to fight the coronavirus pandemic and on how to roll out vaccines more widely.

Despite strong global economic expansion this year, the International Monetary Fund this week warned of a worsening “two-track recovery” and said a “growing divergence in economic fortunes” left many countries at risk. the train.

Financial leaders also discussed efforts to tackle climate change, including France’s proposal for a global minimum price for carbon emissions. Ms Yellen said on Friday that a range of tools should be considered to achieve net zero emissions.

“It is important to recognize that there are many policy levers and pathways that countries will take to create incentives for decarbonization,” Ms. Yellen said at a panel discussion. “These could include regulatory measures, standards, direct public investment, public subsidies to incentivize private investment and carbon markets. “

She added: “Our policies should have the common goal of giving the public and private sectors the clarity, incentives and resources to reduce emissions. “

Ms. Yellen, who is on her second international trip as Secretary of the Treasury, will hold bilateral meetings with many of her counterparts, including officials from Saudi Arabia, Japan, Turkey and Argentina. China, which has adhered to the global minimum tax framework, is not expected to send officials to the gathering of finance ministers and central bank governors, so there will be no talks between the two largest economic powers in the country. world.

The forum will be another opportunity for the Biden administration to demonstrate the United States’ renewed commitment to multilateralism.

Mr Saint-Amans expressed optimism about the trajectory of the tax negotiations, which were on life support during the last year of the Trump administration, and attributed this in large part to the new diplomatic approach of the United States. .

“It took an American election and some work at the OECD,” he said.

During the roundtable on taxation and climate change, Ms. Yellen’s counterparts said they appreciate the cooperative spirit of the United States.

Chrystia Freeland, Deputy Prime Minister and Minister of Finance of Canada, said the United States’ return to the table to fight climate change was “welcome” and “transformative.” Mr. Le Maire thanked the Biden administration for joining the Paris Agreement.

“The United States is back,” he said.

Liz Alderman Contribution to the report from Paris.

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