G20 ministers mull tax dodging plan
A sweeping effort to deter cross-border tax dodges by multinational companies that have cost governments billions topped the agenda as finance ministers from the world’s major economies gathered in Venice.
Approval of the international tax package seems likely at the Group of 20 gathering that started Friday and was to continue Saturday. But the proposals backed by U.S. President Joe Biden face a key hurdle in the U.S. Congress, where Republicans have vowed to oppose them.
Prospects for reaching a final deal later this year improved after Biden proposed setting a 15% global corporate minimum tax rate, resulting in a breakthrough in stalled international talks. An agreement was reached July 1 among 131 countries in negotiations convened by the Paris-based Organization for Economic Cooperation and Development.
The deal aims to discourage the use of often-complex accounting schemes to move profits to where the least tax is due.
The OECD deal asks countries where companies are headquartered to enact the minimum tax so that their companies would pay tax at home — even if they shift profits to subsidiaries in lowrate countries overseas, so-called tax havens. Countries have lowered their tax rates to attract the revenue, moves described by U.S. Treasury Secretary Janet Yellen as a global “race to the bottom” that the proposal could stop.
Another part of the tax package would let countries tax a portion of the profits of large and profitable companies that have no physical presence but make significant amounts of money there, such as through digital businesses like online retailing and advertising.
Endorsement by the G-20 finance ministers is likely since all 20 member countries — representing more than 80% of the global economy — signed the deal at the OECD. A thumbs-up would mean more technical work at the OECD, followed by a bid for final approval at a Group of 20 leaders’ summit Oct. 30-31 in Rome hosted by Italy, which has the rotating G-20 chair.
Adam Posen, president of the Peterson Institute for International Economics, said it was an opportunity the U.S. and the world should not miss. Asked how he would describe the deal to noneconomists, he said, “right now we got a bunch of countries ripping us off by essentially giving kickbacks to many American big multinationals, to pay their taxes there instead of in the U.S.”