VENICE – G20 finance ministers yesterday gave their backing to a historic deal to overhaul the way multinational companies are taxed, and urged holdout countries to get on board.
A total of 132 countries have signed up to a framework for international tax reform, including a minimum corporate rate of 15%, struck earlier this month.
But, the endorsement by the 19 biggest economies plus the European Union will help ensure it becomes a reality following years of negotiations.
“We have achieved a historic agreement on a more stable and fairer international tax architecture,” said the ministers in a final statement following two days of talks here, hosted by G20 president Italy.
“We endorse the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax.”
United States Treasury Secretary Janet Yellen, among those attending the grouping’s first face-to-face meeting since February last year, said the momentum must not now be lost.
“The world is ready to end the global race to the bottom on corporate taxation,” she said in a statement, adding that it “should now move quickly to finalise the deal”.
French Finance Minister Bruno Le Maire said it is a once-in-a-century opportunity for a “tax revolution”, adding: “There is no turning back.”
His German counterpart, Olaf Scholz, tweeted: “Finally, large corporations can no longer escape their tax liability.”
The reform aims to prevent countries competing to offer the lowest tax rates to attract investment, which has often resulted in multinationals paying derisory levels.
The final agreement is expected in the run-up to the G20 leaders’ summit in Rome in October, with hopes that the changes can be in place by 2023.
Pressure on holdouts
Countries including the US, France and Germany have been pressing for a higher minimum tax rate.
However, some nations are opposed to 15%, including Ireland, which lured Apple and Google to Dublin with low rates.
In their final statement, the G20 ministers “invite” countries to sign up.
Without the agreement of Ireland and other EU holdouts Hungary and Estonia, the bloc cannot implement the deal.
And while hailing the “unprecedented agreement”, EU economic affairs commissioner Paolo Gentiloni warned: “Our work is not done.”
Non-governmental groups that analyse the tax affairs of multinationals, like Oxfam, have criticised the reform for letting rich countries keep most of the extra tax revenue.
Indian Finance Minister Nirmala Sitharaman, who attended the talks here remotely, said: “Further work needs to be done to ensure a fairer, sustainable and inclusive tax system that results in meaningful revenue for developing countries.”
Worldwide rules
Italian Finance Minister Daniele Franco said what has been achieved must not be underestimated.
“To have worldwide rules for taxing multinationals, for taxing profits of big companies, is a major change, it’s a major achievement.”
The minimum tax rate is expected to affect fewer than 10,000 major companies, but the Organisation for Economic Cooperation and Development estimates an effective 15% rate will generate an extra US$150 billion (RM628.58 billion) in revenue per year.
The measure is one of two so-called pillars of global tax reform that have been under negotiation for years, and given new impetus under US President Joe Biden.
The other would give countries a share of the taxes on profits earned in their territory.
Multinationals operate in many countries, but usually pay taxes on profits only in tax domiciles cherry-picked for their low rates.
The profit reform will initially apply to the top 100 or so firms, and is targeted at the most aggressive users of tax-reducing domiciles, such as technology giants Google, Amazon, Facebook and Apple.
The changes agreed on will ensure “that the right companies pay the right tax in the right places”, British Finance Minister Rishi Sunak told AFP.
Covid-19 risks
Hundreds of protesters converged here yesterday, although the Arsenal area of the lagoon city, where the meeting was held, was cordoned off to the general public.
“We don’t expect the real change, radical change that we need,” said 20-year-old student Elena Carraro, demanding that the G20 focus more on climate change.
The grouping, whose members represent about 85% of global wealth, did discuss the climate, as well as the post-pandemic recovery.
Ministers warned that the global recovery is uneven and “exposed to downside risks, in particular, the spread of new variants of Covid-19 and different paces of vaccination”.
They backed an initiative by the International Monetary Fund to increase aid to nations struggling to cope with the pandemic through special drawing rights – international reserve assets – saying it must be implemented “by the end of August”. – AFP, July 11, 2021
