Global Finance Leaders Start Talks for Tax Overhaul
The overhaul under discussion includes a global minimum tax that companies would pay regardless of where they locate their headquarters.
Global finance leaders move closer to international tax agreement.
Finance ministers from the Group of 7 gathered in London on Friday. The meetings with be the first test of Janet L. Yellen’s deal making ability as Treasury secretary.Credit…Pool photo by Stefan Rousseau
June 4, 2021, 10:05 a.m. ET
LONDON — Finance ministers from the Group of 7 nations were on the cusp of a broad agreement over how to overhaul the international tax system and were aiming to announce a pact on Saturday that could have financial consequences for some of the world’s largest companies, according to officials familiar with the negotiations.
A deal would come after years of discussion and, if implemented, would bring about significant changes to world taxation. The agreement would redefine how and where businesses are taxed and, at least theoretically, put an end to tax havens that have eroded the finances of some of the world’s leading economies.
“I’m confident that there will be an agreement tomorrow morning on international taxation,” Bruno Le Maire, France’s finance minister, said at a briefing at the conclusion of the first of two days of meetings.
The overhaul under discussion would include a new global minimum tax that companies would have to pay regardless of where they locate their headquarters. It would also place an additional tax on some large multinational companies, likely forcing technology giants such as Google, Facebook and Amazon to pay taxes to countries based on where goods or services are sold.
The Biden administration has been pushing for an agreement that it believes would prevent companies from shifting profits outside the United States in search of lower taxes, and stop the proliferation of digital services taxes in Europe that it sees as unfairly targeting American technology companies. Janet L. Yellen, the Treasury Secretary, has said the United States support a tax of at least 15 percent.
That type of global tax would help President Biden in his effort to raise taxes on American corporations to pay for his infrastructure plans. Business groups and Republicans have complained that raising taxes in the U.S. will put American companies at a global disadvantage and provide an incentive for firms to move overseas. A global minimum tax would help to discourage that from happening because a firm would have to pay a baseline rate to its home country on its overseas profits, making offshoring to a country with lower taxes less enticing.
Yet crucial details that will determine the scope of the agreement were still being worked out on Friday night, including the actual rate the countries would support and whether an agreement should prevent countries from imposing digital services taxes that have been passed in several European nations.
Finance ministers were grappling on Friday with whether the words “at least” should be included before the 15 percent global minimum tax in the joint statement that will be released on Saturday.
There was also debate between the United States and France, Italy and the United Kingdom about the timing of when those countries would remove their digital services taxes. According to an official familiar with the negotiations, the United States wants them to commit to dropping their taxes once a deal is finalized. However, those the countries want to wait until the agreement is fully implemented, which could take between two and four years.
A Treasury Department spokeswoman had no comment.
Top economic officials from Spain, Italy, France and Germany expressed optimism on Friday morning that the tax negotiations, which have been going on for several years, are on track. In an essay published in The Guardian newspaper, they suggested that the new negotiating approach from the Biden administration was more constructive than the tactics of the Trump administration, which walked away from the bargaining table last year.
“With the new Biden administration, there is no longer the threat of a veto hanging over this new system,” they wrote, adding that they thought a global tax agreement could be done by July. “It is within our reach.”
Officials hope that an agreement at the G7 will lead to even broader support when the Group of 20 finance ministers gather in Italy next month and pave the way to a final agreement when the G20 leaders convene in October. The negotiations are taking place through the Organization for Economic Cooperation and Development, the Paris-based international policy agency that counts the world’s wealthiest nations as members.
Implementing the deal will be complicated and will require countries to change their laws to comply with what has been agreed in principle. Republican lawmakers in the United States have already expressed concern with the proposals.
The Biden administration continues to hold out the possibility of retaliatory tariffs against European countries that have enacted digital taxes.
Earlier this week, the administration imposed tariffs on about $2.1 billion worth of goods from Austria, Britain, India, Italy, Spain and Turkey, but it immediately suspended those tariffs for 180 days to allow for negotiations to continue.
The G7 countries include Britain, Canada, France, Germany, Italy, Japan and the United States. The summit is the first in-person gathering of top officials from the world’s advanced economies since the pandemic emerged in early 2020 and turned such events into virtual affairs.
As they huddled at London’s Lancaster House, officials also discussed how much additional fiscal support their countries require, how to help developing countries gain access to vaccine supplies and ways to collaborate more effectively to combat climate change.
The meetings are first test of Ms. Yellen’s deal making ability as Treasury secretary. She met on Thursday evening with Rishi Sunak, Britain’s chancellor of the Exchequer, who has yet to publicly back the U.S. proposals. Ms. Yellen said on Twitter that it was a “great conversation” about shared priorities.
Ms. Yellen was also scheduled to meet with the rest of her G7 counterparts along with Paschal Donohue, the Irish finance minister who is attending in his capacity as Eurogroup president. Ireland, which has a tax rate of just 12.5 percent and is not part of the G7, has expressed its opposition to the global minimum tax proposals.
The G7 finance ministers hope that Ireland will bend to political pressure and raise its rate if a broad deal is reach.
Mr. Le Maire said if the deal falls through, it would mean more countries continuing to slash their tax rates at a time when governments desperately need the revenue.
“It’s vital for Europe not to go the way of a race to the bottom,” he said.