Top finance officials representing most of the world’s economy have backed a sweeping revision of international taxation that includes a 15 percent global minimum corporate levy to deter big companies from resorting to low-rate tax havens.
Finance ministers from the G0 countries endorsed the plan at a meeting in Venice on Saturday.
US Secretary of the Treasury Janet Yellen said the proposal would end a “self-defeating international tax competition” in which countries have for years lowered their rates to attract companies.
She said that had been “a race that nobody has won. What it has done instead is to deprive us of the resources we need to invest in our people, our workforces, our infrastructure.”
The next steps include more work on key details at the Paris-based Organization for Economic Co-operation and Development (OECD), and then a final decision at the G20 meeting of presidents and prime ministers in Rome on Oct. 30 and 31.
Implementation, expected as early as 2023, would depend on action at the national level. Countries would enact the minimum tax requirement into their own laws. Other parts could require a formal treaty. The draft proposal was approved on Thursday last week in talks among more than 130 countries convened by the OECD.
Italy hosted the finance minister’s meeting in Venice because it holds the rotating chair of the G20, which makes up more than 80 percent of the world economy.
The event also attracted about 1,000 protesters under the banner “We Are The Tide,” an umbrella group of environmental and social justice activists, including opponents of large cruise ships and the hordes of tourists they bring to the lagoon city.
A small group scuffled with police on Saturday after breaking away from an approved demonstration area.
The US already has a minimum tax on overseas earnings, but US President Joe Biden has proposed roughly doubling the rate to 21 percent, which would more than comply with the proposed global minimum.
Raising the rate is part of a broader proposal to fund Biden’s jobs and infrastructure plan by raising the domestic corporate tax rate to 28 percent from 21 percent.
Yellen said she was “very optimistic” that Biden’s infrastructure and tax legislation “will include what we need for the United States to come into compliance” with the minimum tax proposal.
Republicans in the US Congress have opposed the measure.
US Representative Kevin Brady, the top Republican on the tax-writing US House of Representatives Committee on Ways and Means, has blasted the OECD deal, saying: “This is an economic surrender to China, Europe and the world that Congress will reject.”
The international tax proposal aims to deter the world’s biggest firms from using accounting and legal schemes to shift their profits to countries where little or no tax is due — and where the company may do little or no actual business.
Under the minimum, companies that escape taxes abroad would pay them at home. That would eliminate incentives for using tax havens or for setting them up.
From 2000 to 2018, US companies booked half of all foreign profits in seven low-tax jurisdictions: Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland.
A second part of the tax plan is to permit countries to tax a portion of the profits of companies that earn profits without a physical presence, such as through online retailing or digital advertising. That part arose after France, followed by other countries, imposed a digital service tax on US tech giants such as Amazon and Google.
The US government regards those national taxes as unfair trade practices, and is holding out the threat of retaliation against those countries’ imports into the US through higher import taxes.
Under the tax deal, those countries would have to drop or refrain from national taxes in favor of a single global approach, in theory ending the trade disputes with the US.
US tech companies would then face only the one tax regime, instead of a multitude of different national digital taxes.
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