U.S. President Joe Biden speaks about his government’s pledge to deliver 500 million doses of Pfizer Coronavirus Vaccine (PFE.N) to the world’s poorest countries during a visit to St. Ives, Cornwall, UK on June 10, 2021 donate.
Kevin Lemarque | Reuters
WASHINGTON – President Joe Biden and G-7 Group leaders will publicly endorse a minimum global corporate tax of at least 15% on Friday, part of a broader agreement to update international tax laws for a globalized, digital economy.
Leaders will also announce a plan to replace digital services taxes that targeted America’s largest tech companies with a new tax plan targeting the places where multinational corporations actually do business, rather than their headquarters.
For the Biden government, the Global Minimum Tax Plan is a concrete step towards its goal of creating a so-called “foreign policy for the middle class”.
This strategy aims to ensure that globalization and trade are used for the benefit of working Americans, not just billionaires and multinational corporations.
For the rest of the world, GMT aims to end the arms race for tax cuts that has resulted in some countries cutting their corporate taxes much lower than others to attract multinational corporations.
If widely passed, GMT would effectively end the practice of global corporations looking for low-tax areas like Ireland and the British Virgin Islands to relocate their headquarters even though their customers, operations and executives are located elsewhere.
The second major initiative that the Biden and G-7 leaders will announce on Friday is a plan they are “actively considering,” the International Monetary Fund’s offer of Special Drawing Rights, an IMF internal currency, the low income countries is available to expand.
This plan aims to expand international development finance to poor countries and help them buy Covid vaccines and recover faster from the effects of the pandemic, according to a White House factsheet.
The White House also said that G-7 leaders will agree to “provide political support to the global economy for as long as necessary to create a strong, balanced and inclusive economic recovery.”
But it is the GMT plan that has the greatest potential to affect business results and influence investor decisions.
The G-7 tax deal “will serve as a stepping stone to broader agreement among the G-20,” said a senior administration official, who spoke with reporters for background information to discuss ongoing talks.
A joint statement by Biden and UK Prime Minister Boris Johnson on Thursday offers an outlook on what to expect from the global tax deal between G-7 partner countries.
British Prime Minister Boris Johnson speaks with US President Joe Biden during their pre-G7 meeting in Carbis Bay, Cornwall, Britain, June 10, 2021.
Toby Melville | Reuters
“We commit to finding an equitable solution to the allocation of tax rights, with market countries being granted tax rights on at least 20% of profits that exceed a 10% margin for the largest and most profitable multinationals,” the statement said .
“We also commit to a minimum global tax of at least 15% on a country basis.”
As part of this agreement, “we will see to it that … the elimination of all taxes on digital services and other relevant similar measures for all businesses.”
The elimination of taxes on digital services, a patchwork of country-specific taxes targeted specifically at America’s largest tech companies, is a real victory for the United States.
Analysts say that getting rid of these taxes – and ending the looming threat of new DSTs – would add a level of security to the international tax system that ultimately big tech companies would benefit from in the long run, even if a new global minimum tax were raised in the short term .
Once the G7 leaders have adopted the GMT proposal, the next step will be to enlist support among the G20, a diverse group of economies that includes China, India, Brazil and Russia.
G-20 finance ministers and central bank governors are due to meet in Venice, Italy in July. Both the IMF funding proposal and the international tax plan are expected to be high on the agenda.
It is currently unclear whether the GMT plan will win the support of the 19 member states and the European Union.
Details of the plan remain to be worked out, and some of the G-20 countries are keeping corporate tax rates relatively low to attract businesses.
Much of the groundwork for the introduction of a GMT has already been laid by the Organization for Economic Co-operation and Development (OECD), which published a draft last autumn outlining the two-pillar approach to international taxation.
The OECD Inclusive Framework on Base Erosion and Profit Shifting, known as BEPS, is the result of negotiations with 137 member countries and legal systems.
One pillar is the plan for countries to levy taxes on multinational corporations based on that company’s share of the profits that comes from a given country’s consumers.
The second pillar is the global minimum corporate income tax, a rate of at least 15% that would apply even if the tax rates in a particular country were lower.