VENICE, Italy — The city of Venice is a popular tourist destination. Global economic leaders will meet on Friday to work out the final details of what would be the most significant overhaul of the international tax system in a century. The meeting will mark the start of an unprecedented race to complete a deal by the end of this year, which will last three months.
Finance ministers from the Group of 20 countries are meeting in this ancient centre of international commerce to press ahead with plans to put an end to global tax havens and force multinational corporations to pay an appropriate share of tax wherever they operate. It has been a long decade since the negotiations began, but they are now entering what officials hope will be the final stretch. The negotiations, which will have far-reaching implications for the financial health of global corporations, have been sputtering along for much of that time.
During a brief interview ahead of the summit, Pascal Saint-Amans, director of the centre for tax policy and administration at the Organization for Economic Cooperation and Development, which is overseeing the talks, said that “a few big weeks and months are ahead.”
After a breakthrough in the negotiations last week, when 130 countries backed a conceptual framework for the new tax plan, the meetings will take place. Each country would be required to implement a global minimum tax of at least 15%, and new rules would require technology behemoths like Amazon and Facebook and other large global corporations to pay taxes in the countries where their goods or services are sold, even if they do not have a physical presence in those countries.
G20 officials are hoping to reach a final agreement by October, when they will reconvene in Italy for the final summit of the calendar year.
The stakes are extremely high in terms of meeting that deadline, particularly for the United States. According to the agreement, a cascade of digital services taxes, which have been implemented by many countries around the world, including France, the United Kingdom, and Italy, in order to capture more tax revenue from American technology companies, will be brought to an end by the agreement. In response, the United States has labelled those taxes as discriminatory, and the Biden administration has approved retaliatory tariffs on wine, cheese, clothing, and other products originating in those countries that could take effect later this year if a deal is not reached.
Despite the fact that the United States wants European countries to eliminate their digital services taxes immediately, policymakers have suggested that they could remain in place until a new agreement is fully implemented, which could take years.
Even as the O.E.C.D. tax negotiations continue, the European Union is pressing ahead with plans for a new digital levy to be implemented. At the conclusion of her two-country trip, Treasury Secretary Janet L. Yellen is expected to call on her European Union counterparts to postpone such a move when she visits Belgium next week, according to reports.
A number of other outstanding issues must be resolved this weekend and in the coming months, including the exact rate that multinational corporations will be subjected to.
Several Treasury Department officials stated ahead of the meetings that the countries had not yet reached an agreement on a global minimum tax rate, which would be higher than 15 percent, as the United States and France desired. Other countries with low tax rates, such as Ireland, have so far refused to sign on to the agreement, and the G20 nations must figure out how to persuade those remaining holdouts to accept the tax.
Daily Business Briefing
July 8, 2021, 3:31 p.m. ET
If the United States is able to get the reforms passed through Congress, Mr. Saint-Amans believes that reluctant countries like Ireland will come around to joining the agreement. He acknowledges that this is not guaranteed, but believes that countries like Ireland will come around to joining the agreement. Several Republican members of Congress have expressed scepticism about the global minimum tax, in part because they believe it will be used by the Biden administration to justify raising the corporate tax rate in the United States.
According to President Biden, his proposal to raise the corporate tax rate in the United States from 21 percent to 28 percent is conditional on the implementation of a global minimum tax, which he believes will deter companies from simply shifting operations offshore. Politicians from the Republican Party, who reduced the corporate tax rate from 35 to 21 percent in 2017, have stated that they will oppose any changes to those tax cuts.
Department of the Treasury officials have expressed confidence that the global tax will pass muster in the United States of America. Officials have not stated whether the White House believes it is necessary to gain the support of conservative Republicans or whether they believe they can get the tax changes passed only with Democratic votes. Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee, told reporters this week that the Biden administration’s proposed tax overhaul would be dead on arrival in Congress if it were to pass through the current Congress.
“I believe that, first and foremost, this is an economic surrender that other countries are happy to accept as long as America continues to render itself uncompetitive,” Mr. Brady stated. Second, I believe there are too many competing interests here for them to reach a final agreement that would be acceptable to Congress,” says the author.
Other countries must also decide how to incorporate their commitments into national legislation.
The mechanics of changing how the largest and most profitable companies are taxed, as well as exemptions for financial services, oil and gas businesses, will be at the forefront of the debate. Currently, there are concerns that tax carve-outs will result in the creation of new tax loopholes.
This weekend’s agenda does not only include discussions about taxes. In collaboration with her international counterparts, Ms. Yellen will develop a strategy for increasing aid to developing countries in order to combat the coronavirus pandemic and for expanding the distribution of vaccines.
Despite a strong global economic expansion this year, the International Monetary Fund (IMF) warned this week of a worsening “two-track recovery” and a “deepening divergence in economic fortunes” that is leaving a large number of countries in the rearview mirror of the global economy.
While on her second international trip as Treasury Secretary, Ms. Yellen will meet with a number of her counterparts, including officials from Saudi Arabia, Japan, Turkey and Argentina. She will also attend the World Economic Forum in Davos, Switzerland. It is not expected that China, which signed on to the global minimum tax framework, will send representatives to the meeting of finance ministers and central bank governors, ensuring that there will be no discussions between the world’s two most powerful economies.
The forum will provide yet another platform for the Biden administration to demonstrate the United States’ renewed commitment to multilateralism in the international arena.
He expressed optimism about the trajectory of the tax negotiations, which had been on life support during the final year of the Trump administration, and attributed this to the United States’s new diplomatic approach, which he said was largely responsible for the optimism.