Global tax reform gains steam as G20 FMs back new levies

NEW DELHI: Top finance officials representing most of the world’s economy have backed a sweeping revision of international taxation that includes a 15% global minimum corporate levy to deter tech giants big companies from resorting to low-rate tax havens.
Finance ministers from the Group of 20 countries endorsed the plan at a meeting on Saturday in Venice. Italy hosted the meeting because it holds the rotating chair of the G-20, which makes up over 80% of the world economy.
US treasury secretary Janet Yellen said the proposal will 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 resources we need to invest in our people, workforces, infrastructure.”
The next steps include more work on key details at the Paris-based Organisation for Economic Cooperation and Development and then a final decision at the G20 meeting of presidents and prime ministers on October 30-31 in Rome. If enacted, the plan could reshape the global economy, but resistance is mounting from businesses, which could soon face higher tax bills, as well as from small, but pivotal, low-tax countries such as Ireland, which would see their economic models turned upside down.
Implementation, expected as early as 2023, would also 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 July 1 in talks among more than 130 countries convened by the OECD.
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 2000-2018, 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 favour 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.