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Global talks on reshaping the international tax system and introducing a global minimum corporate tax rate have received renewed impetus in recent months, and this week’s meeting of Finance Ministers of the Group of Seven in July or October could give additional momentum to a broader deal.
Important details remain in the negotiations – led by the Organization for Economic Co-operation and Development – over taxing the world’s richest companies, including Facebook Inc. and Apple Inc.
The ultimate goal is to get the biggest companies to pay more taxes in the countries where they have sales rather than their headquarters and to stop competition between countries to attract low-rate business.
Here are the top milestones to look at:
4th-5th June: G7 finance ministers meet
The G-7 took on an unexpected role in the eleventh hour of the talks, despite not having direct authority to approve a deal. Officials from some of the world’s largest economies want to show progress this week in London, their first face-to-face meeting since the Covid-19 pandemic began.
European members of the G-7 say that finding common ground in the smaller group is a prerequisite for a global deal and will provide a strong impetus for a broader deal. French Finance Minister Bruno Le Maire said in May that if the G-7 and the Group of 20 stand together, all opponents of a global deal will “fight to survive”.
Read more: Global negotiators argue over sales threshold in tax talks
G-7 ministers are expected to issue a communique on Saturday, despite officials telegraphing that the tax department may be more general, rather than, for example, setting parameters on which companies will be subject to new tax regulations.
“The starting point is trying to reach political consensus, high-level political engagement with the G-7,” said Manal Corwin, a former Treasury Department official, now at KPMG. In the coming months “they have to provide a little more detail to get each country on board”.
June 30th – July 1st: meeting of the entire OECD group
While the G-20 ultimately sign the agreement, the OECD must first reach an agreement between the currently 139 jurisdictions that are part of the group’s “inclusive framework”. An important meeting is planned for the end of June in Paris.
That means winning over not only the largest and richest nations, but also developing countries that did not have that much say, while wealthier countries work out the most important details.
US initiative for OECD could reshape the landscape for businesses
Source: Organization for Economic Cooperation and Development
Developing countries are concerned about the current version of the plan – particularly the US proposal to limit new taxes to only about 100 companies – that they won’t see enough new revenue to make the rules worthwhile.
“At this point, they are realistically trying to maximize what they can,” said Abdul Muheet Chowdhary, senior program officer at the South Center, a researcher in developing countries.
9-10 July: G20 finance ministers meeting
This meeting in Venice represents the G-20’s most recent self-imposed deadline for finalizing tax talks after a previous 2020 target fell on the pandemic.
The G-20 finance ministers have the power to sign an agreement, but important details may still be missing when an agreement is reached in July.
On his last day as OECD Secretary General on Monday, Angel Gurria said the “outline of an agreement” could come in July, followed by an agreement on a “final package” in October.
29.-31. October: G20 ministers and heads of state and government meet
At the Rome Summit, participants will likely finalize further details of the plan and decide on any remaining key issues.
Read QuickTake: Plans for a Global Minimum Tax Revolution, Explained
While some European officials have been discussing the chances of a major deal this summer, the OECD has been more conservative on the specifics, especially as some countries may need to make changes to their national laws first
2022 and beyond: redesign laws, contracts
Even if there is an agreement in the months ahead, it will likely take years to become a reality. The OECD and the G-20 have no power to enforce the final plan.
The negotiators need to devise the mechanisms – such as legislative texts and a multilateral instrument to deal with treaty changes – that countries will use to implement the agreement. Then each country has to pass new laws and update treaties to reflect the changes.
Even for Europe and the US, which led the way in brokering a deal, selling at home could prove difficult.
Read more: McConnell reveals who’s boss after 9 years of battling over tax deals
A change in tax policy for the European Union is likely to require the unanimous support of Member States. This could be a significant hurdle as some countries like Ireland and Hungary consider the US proposed minimum global tax rate of 15% too high.
In the US, Democratic lawmakers largely support the efforts of the Biden administration, but the party’s wafer-thin majorities mean that an agreement leaves no room for error in getting Congress through. In addition to legislation, the implementation of the plan will most likely require changes to tax treaties that require a two-thirds majority in the Senate.
Republicans who have voiced concerns about the tax project could win back majorities in the November 2022 midterm elections, meaning any plan approved by Biden officials could become obsolete indefinitely if not in effect by then occurs.
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