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G-20 heads to endorse global tax accord, capping years of talks
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G-20 heads to endorse global tax accord, capping years of talks

2 min. 30.10.2021 From our online archive
The agreement is a historic reshaping of the rules for the global economy, according to an official travelling with US President Joe Biden
US President Joe Biden leaves the Chigi palace in Rome following a meeting with the Italian prime minister, ahead of an upcoming G20 summit
US President Joe Biden leaves the Chigi palace in Rome following a meeting with the Italian prime minister, ahead of an upcoming G20 summit
Photo credit: AFP

Leaders of the world’s biggest economies who have gathered in Rome will endorse an ambitious plan on Saturday to overhaul the way countries around the world tax multinational companies, according to a senior US administration official.

The official, travelling with President Joe Biden, called the agreement a historic reshaping of the rules for the global economy that will force corporations to pay their fair share of taxes. That echoed previous comments by Treasury Secretary Janet Yellen, whose support helped push forward a deal that had languished during the administration of President Donald Trump.

The pact had already won support in October, in principle, from 136 governments under the auspices of the Organization for Economic Cooperation and Development, and G-20 finance ministers endorsed a framework for the agreement in July. 

The G-20’s endorsement of the deal stands out at a summit that looks unlikely to produce any additional substantial agreements. Leaders have failed to make serious progress on other prominent issues, including climate change and debt relief for low-income countries.

The tax pact has two sweeping objectives. It intends first to halt the effort by multinational companies to shift profits into low-tax havens through a new global minimum tax of 15% for multinational companies. It also attempts to address the increasingly digital nature of international commerce by taxing companies, in part, on where they do business instead of where they book profits.

While the deal has overcome some major impediments - such as getting low-tax Ireland to sign on - it faces several potential snags before it comes into force and proves effective, including the creation of a credible dispute resolution mechanism.

Signatory countries must also follow through by enacting domestic legislation to implement the new tax rules and by formally approving a multilateral convention, to be drafted by the OECD.

The US and five European governments helped the agreement along with a side deal, announced on 21 October. It allows the European countries to retain, for now, so-called digital services taxes on technology giants like Facebook and Amazon.com, which US officials said unfairly discriminated against American companies. That allows those nations to maintain revenues and keeps the pressure on Congress to approve the new rules over objections from top Republicans.

Tax credits

If and when a new global tax regime comes into force in the next two years, the European countries will offer a credit to effectively refund any taxes collected in excess of what corporations would pay under the global tax deal.

Despite the Biden administration’s hearty backing, the overall deal may still face its biggest challenge in the US, where it’s uncertain whether the president can convince enough lawmakers to approve the new reallocation of taxes.

While congressional Democrats can enforce the 15% minimum tax on their own this fall as part of Biden’s proposed social-spending package, enacting the tax-reallocation portion may take several more months and will face stiff opposition from Republicans.

“The Biden administration retreated by failing to demand immediate repeal of discriminatory taxes, which will continue for years, if not indefinitely,” Senator Michael Crapo of Idaho and Representative Kevin Brady of Texas - the top two Republicans on Congress’s tax-writing committees - said in a statement on 22 October. “The administration simply settled for an empty promise - if we reform our tax laws to these countries’ satisfaction, then they will grant US businesses tax credits against future taxes.”

©2021 Bloomberg L.P.


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