The world’s 20 largest economies will sign a global corporate tax revision this weekend as the EU, US and Ireland reflect on their respective interests.
The Finance Ministers of the Group of 20 (G20) Nations meet in Venice today, a week after 130 countries approved new taxation rights for countries where multinational corporations operate and a 15 percent tax on their global profits.
While the G20 is an important milestone on the way to reaching an agreement, following the prior approval of the G7, there are still many variables at play.
“The G20 is not the end of the road, but the beginning of the process, which then has to be implemented in legislation at European level,” said Spain’s Minister for Economic Affairs, Nadia Calvino, yesterday at the Institute for International and European Affairs.
The European Commission has announced that it will translate any global agreement into EU law by 2023, but is also planning a separate digital tax that threatens to upset the US and spark a trade war.
BusinessEurope, which represents European companies, warned the Commission to “think carefully about the consequences” of bringing forward a digital tax, especially when a global deal is within reach.
“We are particularly concerned that such a levy could damage relations with our key trading partner the US – where concerns have already been expressed about the EU digital levy – with the potential for sustained tariff retaliation and jeopardize the future prospects for a swift agreement and implementation of a global agreement both in the USA and in other countries, ”BusinessEurope bosses Pierre Gattaz and Markus Beyrer wrote to Commission President Ursula von der Leyen this week.
Meanwhile, US Treasury Secretary Janet Yellen is reportedly pushing for a minimum tax rate of well over 15 percent. A US domestic tax revision currently under discussion in Congress puts a rate of 21 percent on the global profits of multinational corporations, which could make the US less attractive to investors if not reflected on a global scale.
It is up to the Paris Organization for Economic Co-operation and Development (OECD), which brokered the deal, to work out the nuances.
The Irish government has said it “fully” supports the first pillar of the OECD’s Tax Redistribution Agreement, but has reservations about the 15 percent rate.
While the government has priced in a $ 2 billion annual loss from the redistribution rules, it’s unclear how much a 15 percent surcharge could pull from public finances – especially if multinational corporations decide it’s no longer worth investing in Ireland .
“The agreed minimum rate of at least 15 percent will be a departure both materially and for our global brand,” said Gerard Brady, chief economist of the Ibec Group.
“We need to meet this competitiveness challenge by investing in other growth levers such as education, research and development, and critical infrastructure. If we are proactive on this front, there is no reason why Ireland cannot continue to be an attractive location to invest in. “
Lithuania has acceded to the OECD agreement this week, bringing the number of countries backing it to 131 and keeping the Irish government at the OECD table with two EU allies – Hungary and Estonia – and seven.