The group of 20 major economies’ group of finance chiefs is expected to endorse plans to set a global minimum corporate tax rate and other new rules to combat tax avoidance by multinational corporations when they conclude their talks later Saturday.
Your approval is likely to give momentum to efforts to reach an agreement in October and put an end to years of multilateral negotiations to update the centuries-old international tax system. The measures are also intended to help governments generate revenue to invest in their recovery from the coronavirus pandemic.
The G-20 could also reaffirm the importance of faster vaccine distribution as it allows developing countries to lag behind on vaccine availability, leave their populations vulnerable to the virus, and allow contagious variants to emerge and ricochet around the world, potentially helping the recovery of the world World economy.
Japan Treasury Secretary Taro Aso (R) and U.S. Treasury Secretary Janet Yellen meet on the sidelines of the Group of 20 meeting in Venice, Italy, July 9, 2021. (Photo courtesy Japan Treasury Department) (Kyodo)
Japanese Treasury Secretary Taro Aso and US Treasury Secretary Janet Yellen attended the two-day meeting in the canal city of Venice, Italy. It was the first face-to-face meeting of G-20 finance ministers and central bank governors since the pandemic began to accelerate early last year.
The talks took place only about a week after a broad agreement by 130 nations and regions on a two-pillar package for international tax reform – the introduction of tariffs on the largest and most profitable companies in the world, including IT giants, as well as a common minimum tax rate of at least 15 percent.
The agreement, now supported by 131 economies, was the result of working-level discussions coordinated by the Organization for Economic Co-operation and Development.
The support of the G-20 ministers, which unites major developed and developing countries, is seen as a crucial step towards gaining final approval at the meeting of heads of state and government scheduled for late October.
In a communique to be released by the G20 chiefs of finance, participants could try to add impetus to the process by asking more countries to sign the agreement.
Eight countries that participated in the OECD talks have not yet done so, including Hungary and Ireland, whose low corporate tax rates appeared to be attractive to businesses.
The plan calls for Pillar One to change existing tax rules that are heavily tied to a company’s physical presence, as digital commerce has enabled companies to post profits in low-tax countries no matter where their customers are.
The new rules would “redistribute” taxation rights vis-à-vis multinational corporations more fairly between countries, meaning that large corporations would have to pay taxes in countries where they actually do business and make a profit.
Around 100 multinational companies and possibly several Japanese companies could be subject to the new tax.
The second pillar, or minimum global corporate tax rate, will attempt to suppress competition between countries in order to offer the lowest rate to companies.
According to estimates by the OECD, the first pillar will allocate tax rights to market jurisdictions on profits of more than 100 billion US dollars each year, while the second pillar will generate around 150 billion US dollars annually in additional global tax revenue.
The Paris-based organization announced that it had set a deadline in October for the remaining “technical work” to be completed, with the aim of implementing the new rules in 2023.
Efforts to reach an agreement have picked up pace in recent months after President Joe Biden’s US government, seeking to revive multilateralism, proposed raising the minimum corporate tax rate to at least 15 percent worldwide.
The US idea also seems to have been well received by the group of seven industrialized countries whose finances have deteriorated due to increased spending to support their pandemic-hit economies.
The G-20, which includes all G-7 members, consists of Argentina, Australia, Brazil, Great Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA and European Union.
G-20 CFOs meet to talk about uneven recovery, int’l tax
G-20 should take “urgent” action to address divergent recovery: IMF
G-20 commends stronger coordination in the fight against COVID-19 and food shortages