Global tax talk enter vital two weeks ahead of key meetings

Tax rate would generate around €126.4bn in extra revenue for governments across globe, official says

 Finland’s Finance Minister Annika Saarikko (L) is welcomed by Eurogroup president Paschal Donohoe (2-L), ECB president Christine Lagarde (2-R) and German finance minister Olaf Scholz (R) during a meeting of Eurogroup Finance Ministers at the European Council building in Luxembourg,  June 17th. Photograph: Francisco Seco/EPA

Finland’s Finance Minister Annika Saarikko (L) is welcomed by Eurogroup president Paschal Donohoe (2-L), ECB president Christine Lagarde (2-R) and German finance minister Olaf Scholz (R) during a meeting of Eurogroup Finance Ministers at the European Council building in Luxembourg, June 17th. Photograph: Francisco Seco/EPA

 

Talks on a major reform package for global corporate tax are entering a crucial two weeks, ahead of a key meeting of negotiations at end of the month and a G20 meeting in mid-July. A global minimum corporate tax , a key aspect of the plan, would generate around $150 billion (€126.4 bn) in extra revenue for governments across the world, according to the official overseeing frenetic talks to get a deal between 139 countries in coming weeks.

“This is not an anecdotal amount,” Pascal Saint-Amans, director of the centre for tax policy at the Organisation for Economic Cooperation and Development, (OECD) said on BFM Business TV. “In some ways, this is the end of the work on regulating globalisation for greater tax justice.”

After seven years of technical work on an overhaul of international taxation, negotiators at the OECD will meet in Paris on June 30th with the aim of making a proposal before a meeting of the Group of 20 industrialized nations in July. That follows an agreement between the Group of Seven to set a floor on corporate tax rates of “at least 15 per cent”

The $150 billion estimate by Saint-.Aman takes into account the OECD deal on minimum tax, as well as a revised version of existing US measures on taxing foreign profits known as GILTI.

Key aspects remain to be agreed

However key aspects of the OECD deal remain to be agreed, including the level of the global minimum tax and how it would be applied. Alongside negotiations on a global minimum rate, the OECD is also working on a system to divide up between governments the rights to tax multinationals, particularly tech firms. The US has proposed that this be restricted to around 100 of the largest companies, but some other countries want it to apply more widely and developing countries are looking for guarantees that they would get a reasonable share.

The Irish Government has estimated that this aspect of the talks could cost the exchequer €2 billion per year. In relation to the minimum tax debate, Minister for Finance, Paschal Donohoe, has said that Ireland should be able to retain its 12.5 per cent rate. Raising the rate could increase revenues to the Irish exchequer, though there is debate on the impact on attracting inward investment,

Saint-Amans added that political momentum to stop firms parking profits in tax havens, and a need for governments to repair finances after the pandemic, mean that a G20 deal is possible.

“It’s a month already that we’ve had little sleep, and the next two weeks will be very important,” Saint-Amans said. “Common sense is difficult for the international community, but I think we can get there.”

US challenges

The US will face challenges too, since a deal may need legislation in Congress, and treaty changes in the Senate that require a two-thirds majority. Democrats largely support US Treasury Secretary Janet Yellen’s efforts to overhaul international taxes, but party leaders want assurances on other countries’ commitments before asking members to vote on controversial minimum taxes.

“I don’t want the OECD to react to what we do but not do it in unison,” said Richard Neal, the Democrat who chairs the House Ways and Means Committee. “Then all of a sudden we are out with a rate that perhaps they can undercut.”

“Higher US tax rates instituted before other countries move poses the risk of others not following through,” Mike Crapo, the top Republican on the Senate Finance Committee, told Treasury Secretary Yellen on Wednesday. “Congress needs to understand the analysis behind your proposals, and whether any agreement would allow foreign targeting of US companies or special carve-outs for particular jurisdictions, including China.” – Bloomberg