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The tax deal agreed by the world’s major advanced countries this weekend is the first substantial test of the recovery in international cooperation since President Joe Biden brought the U.S. to the negotiating table. However, there is still a long way to go before it can be implemented.
“This is a starting point,” said French Finance Minister Bruno Le Maire, promising that “in the coming months we will fight to ensure that this minimum rate of corporate tax is as high as possible.”
The deal aims to close the loopholes that multinationals have exploited to reduce their tax bills, ensuring they pay more to the nations where they operate.
G7 ministers supported a global minimum rate of at least 15%, and agreed that countries should have the right to tax a certain proportion of the largest and most profitable profit of multinationals in the places where it is generated.
However, they still have a long way to go in deciding on the broader global negotiations, which are taking place between 139 OECD countries in Paris. The first hurdle the G7 deal faces is gaining the support of the G20 group of nations, which will meet in Venice next month.
While the OECD estimates the proposals could generate additional tax revenue of $ 50 billion a year, the actual amount raised will vary greatly depending on the technical details of any global agreement.
There will be a particular impact of two factors: the rate at which any minimum is set and whether countries that implement the minimum can charge it on revenue generated in countries that do not. The scale of the global impact is particularly sensitive to the latter point, known as “jurisdictional combination” or “country-by-country surcharges”.
NGOs criticized that the 15% minimum was too low; The UK IPPR think tank said “there would not be enough to finish the race to the bottom”.
But Gabriel Zucman, an economist at the University of California, Berkeley, known for his work in tax havens, tweeted that the deal was “historic, inappropriate and promising,” because even though 15% was too much. low, there were no obstacles to reaching a higher rate.
The minimum rate “reduces the incentives for multinational companies to register profits in tax havens,” he said, but added that to minimize, “it is essential that it be by country,” as otherwise companies could use tax havens to offset rates exceeding 15% elsewhere.
Ministers and officials at the G7 talks struggled to stress that their agreement did not mean the world had agreed to changes in international taxation, let alone that the plan would be successful. Instead, they raised it as an ambitious attempt to instill momentum in world talks.
It was recognized by other countries. Irish Finance Minister Paschal Donohoe joined G7 ministers in London, although he has defended his country’s 12.5% rate.
After the announcement, he tweeted: “I’m now looking forward to participating in the discussions at [the] OECD. . . Any agreement must meet the needs of small and large, developed and developing countries.
Global talks must reconcile countries’ competing priorities on two elements, known as “pillars.”
The first, more important for the United Kingdom, France and Italy, seeks to ensure that the world’s largest companies, especially the American digital giants Facebook, Google and Apple, pay more taxes in their countries even if they have little physical presence. .
Rishi Sunak, the UK’s chancellor, said the G7 deal ensured that “the right companies paid the right tax in the right places,” a reference to the first pillar.
By contrast, U.S. Treasury Secretary Janet Yellen did not mention it in her prepared statements, focusing on the second pillar: a global minimum rate of at least 15 percent. This would generate more revenue for the Washington federal government.
The first requires a global agreement and U.S. legislation to go through Congress, while the second (which the OECD estimates will increase additional revenue) can be implemented unilaterally, but would work better if many countries got on board.
The first pillar faces strong opposition in Washington. France, Italy and the United Kingdom refuse to abolish their own digital taxes until the United States has passed the relevant legislation. Canadian Finance Minister Chrystia Freeland later said the G7 deal was announced that her country intended to continue introducing a digital tax as well.
Beyond these questions of principle, many technical questions remain unanswered that could make a big difference in the practical effects of a possible agreement, including the companies that would fall within its scope and how to define the basis. taxable.
“While the main rates are significant, competition is likely to continue at the taxable base level. This can be more messy, ”said Rita de la Feria, a professor of tax law at the University of Leeds.
Asked how the deal would sell to U.S. lawmakers, Yellen said it “would provide a level of certainty to corporations in the United States and around the world about what environment they will operate in and that environment has been very unstable.” .
And she greeted the “Renaissance of Multilateralism.”
In private, some ministers said the urgency of making a deal at the G7 was to show that rich countries still mattered, to show the world that the 21st century would not be dominated by the rules set by China.
The West is trying to regain control of the global agenda by making deals in controversial policy areas after four years of the Trump administration when this was impossible, ministers said in both public and private.
“What I saw during my time in this G7 [meeting] it’s a deep collaboration and the desire to coordinate and address a much wider range of global issues, ”Yellen said.
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