LONDON – Group of Seven (G7) finance chiefs gather this week to hammer out an agreement on corporate tax harmonisation aimed at raising revenues as economies recover from the coronavirus pandemic.
Finance ministers descend here on Friday and Saturday, before a leaders’ summit the following week that is to include US President Joe Biden.
Washington wants a minimum 15% rate of corporate tax to prevent multinationals like tech giants from gaming the system to boost profits.
The G7 will also discuss the post-Covid recovery, climate change, and digital currency regulation.
Biden’s tax proposal has so far won broad support and a “political agreement” could be unveiled this week, according to a European source.
“We are very close to concluding an international agreement” which will lead to “a revolution in international corporate taxation”, said German Finance Minister Olaf Scholz.
France and Germany have backed the US initiative but Britain is on the fence, calling for a wider package of reforms to international taxation to target company incomes more broadly.
‘Momentum hard to stop’
“If the G7 countries all support (a deal on corporate tax), momentum will be hard to stop,” said economics professor Jonathan Portes at King’s College London.
He dismissed talk of opposition from low-tax nations such as Ireland, whose corporate tax rate at 12.5% is one of the lowest in the world, attracting a clutch of tech giants including Facebook and Google.
“It’s unlikely to be a viable or sensible strategy for these countries to defy a broad-based international consensus that includes all the major economies/vast majority of the EU,” Portes told AFP.
Arun Advani, an assistant professor of economics at Warwick University, said a G7 deal would also curb the damaging international rush to slash taxes.
“This agreement... removes pointless competition based on ’tax arbitrage’: attracting companies purely by reducing tax rates,” Advani said.
Diego Iscaro, a senior European economist at economic data group IHS Markit, warned, however, that there was a “decent chance” that proposals made at the meeting “will be watered down in the future”.
G7 host Britain wants multinationals to pay taxes that reflect their operations.
The UK government, however, plans to raise its own corporation tax rate to 25% from 19% to rebuild the nation’s virus-battered finances.
‘Be brave’
Gabriel Zucman, an associate professor of economics at the University of California, Berkeley, called yesterday for a corporate rate of at least 25%.
Zucman calculates that a 25% rate would collect an extra €170 billion (RM857 billion) this year – or half of Europe’s total current corporate tax revenue.
“My message is: go ahead, be brave,” the French academic told AFP, adding that 15% was “ridiculously low” by historical standards.
“Countries that want to be ambitious must agree among themselves on a high rate,” he said.
Kristalina Georgieva, managing director of the International Monetary Fund, has praised Biden’s 15% proposal, however, arguing that it would unlock more resources for governments to invest in areas like education, health or infrastructure.
This week’s London meeting, taking place in person owing to easing Covid-19 restrictions, comes before the G7 Cornwall summit in southwest England that is to start on June 11.
British finance minister Rishi Sunak has urged the G7 to foster a “green and global economic recovery” from the pandemic, ahead of the COP26 UN climate summit in November in Glasgow. – AFP, June 2, 2021
