Global tax overhaul gains steam with G-20

VENICE, Italy — Global leaders on Saturday agreed to move ahead with what would be the most significant overhaul of the international tax system in decades, with finance ministers from the world’s 20 largest economies backing a proposal that would crack down on tax havens and impose new levies on large, profitable multinational companies.

If enacted, the plan could reshape the global economy, altering where corporations choose to operate, who gets to tax them and the incentives that nations offer to lure investment.

But major details remain to be worked out before an October deadline to finalize the agreement and resistance is mounting from businesses, which could soon face higher tax bills, as well as from small, but pivotal, low-tax countries such as Ireland, which would see their economic models turned upside down.

The top economic officials from the Group of 20 nations formally threw their support behind a proposal for a global minimum tax of at least 15 percent that each country would adopt and new rules that would require large global businesses to pay taxes in countries where their goods or services are sold, even if they have no physical presence there.

The approach marks a reversal of years of economic policies that embraced low taxes as a way for countries to attract investment and fuel growth. Instead, countries are coalescing around the view that they must fund infrastructure, public goods and prepare for future pandemics with more fiscal firepower at their disposal, prompting a global hunt for revenue.

“I see this deal as being something that’s good for all of us, because as everyone knows, for decades now, the world community, including the United States, we’ve been participating in this self-defeating international tax competition,” U.S. Treasury Secretary Janet Yellen said on the sidelines of the G-20 summit. “I’m really hopeful that with the growing consensus that we’re on a path to a tax regime that will be fair for all of our citizens.”

The agreement followed a joint statement July 1 that was signed by 130 countries that expressed support for a conceptual framework that has been the subject of negotiations at the Paris-based Organization for Economic Cooperation and Development for the better part of the past decade. The OECD estimates that the proposal would raise an additional $150 billion of global tax revenue per year and move taxing rights of over $100 billion in profits to different countries.

The backing of the broad framework by the finance ministers Saturday represented a critical step forward, but officials acknowledged that the hardest part lies ahead as they try to finalize an agreement by the time the leaders of the G-20 nations meet in Rome in October.

Among the biggest hurdles is an ongoing reluctance by low-tax jurisdictions such as Ireland, Hungary and Estonia, which have refused to sign on to the pact, potentially dooming the type of overhaul that Yellen and others envision. Hungary and Estonia have raised concerns that joining the agreement might violate European Union law, and Ireland, which has a tax rate of 12.5 percent, fears that it will upend its economic model, siphoning the foreign investment that has powered its economy.

Absent unanimous approval among the members of the EU, an accord would stall. Establishing a minimum tax would require an EU directive, and directives require backing by all 28 countries in the union. Ireland had previously hinted that they would object to or block a directive and Hungary could prove to be an even bigger hurdle given its fraught relationship with the union, which has pressed Hungary on unrelated rule-of-law and corruption issues.