The Biden administration and global allies scored a major victory Thursday in their push for a more balanced international corporate tax system, but still face multiple significant obstacles to completing an ambitious plan that has been years in the making.
The boost came during a round of talks hosted by the Organization for Economic Cooperation and Development, where 130 countries and jurisdictions backed a plan to set a minimum corporate tax rate and establish a new regime for sharing the taxes imposed on the profits of multinational firms.
Even as governments hailed the news -- U.S. Treasury Secretary
The U.S. Congress could also prove a major obstacle, since the legislature’s approval would be required to formalize Washington’s participation in the system, and President
“This will level the playing field and make America more competitive,” Biden said in a statement, calling on Congress to pass his tax proposals. Multinational companies “will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions,” he said.
Thursday’s deal leaves several details in the proposals unresolved, including important questions over how and when some countries’ unilateral taxes on tech firms’ revenue will be rolled back.
All that casts next week’s meeting of Group of 20 finance ministers in Venice in a new light, freeing officials to focus more on topics such as containing the Covid-19 pandemic rather than struggling to reach a deal on taxes. It could also represent a chance for senior officials to get on immediately with unfinished tax business.
“This will be the kickoff to the last stretch” leading up to the G-20 leaders’ meeting scheduled for Oct. 30-31 in Rome, said Lilian Faulhaber, a law professor at Georgetown University who specializes in international tax issues. “Venice gives them an opportunity to see exactly where are the areas of work that remain.”
The overhaul is aimed at helping countries share the spoils from multinational firms like
The rules would curtail tax avoidance by making global enterprises pay an effective rate of “at least 15%.” They could also give some smaller countries room to collect more from foreign firms by taxing business activity within their borders, though other small nations could see tax revenue fall.
Several key countries that had been question marks agreed to the terms, including India, China and Turkey, according to the OECD. In fact, Argentina and Turkey came on board at the last moment, according to officials familiar with the negotiations, and the technical details may leave room for further concessions to developing economies.
Japan’s finance minister acknowledged there were some countries in disagreement, but he said there was still time to bring them on board and their opposition wouldn’t necessarily
“We’re going to carefully work to convince the remaining nine countries to join us for a final agreement of all nations by October,”
India’s finance ministry on Friday flagged that “
China’s Foreign Ministry spokesman
“China is willing to uphold multilateralism with all countries and inject new impetus into the global economic recovery,” he said. “We hope we can better accommodate the interests of developing countries and properly handle the concerns of all relevant parties.”
Most of the remaining holdouts can effectively be ignored without endangering the deal -- except for EU members, because implementing the new rules there would require an EU directive, a legal act that must be approved unanimously by all 27 members.
That means Ireland and Hungary, which refused to back the plan, could effectively veto adoption in the EU, or at least force the bloc to resort to exceptional and untried legal measures for implementation.
Hungarian Finance Minister
A senior U.S. Treasury official acknowledged this represents a serious potential hurdle. Ultimately, the official said, for the new agreement to work, EU countries will need to be on board.
Ireland’s finance minister,
French Finance Minister
Europe isn’t the only source of uncertainty. Congress will have to approve any legal changes necessary for the U.S. to comply with the agreement, and it appears clear that Republicans are opposed.
The peril on Capitol Hill is not lost on European leaders. Germany’s finance minister and deputy chancellor,
Neal and his Senate counterpart, Finance Committee Chairman
Resolving the broad international issue has become increasingly urgent for the world economy after disagreements over taxing tech firms and setting a minimum rate spiraled into trade tensions last year. The promise of nearly $150 billion in extra revenue for governments also helped get a deal over the line as most countries face massive budget shortfalls in the wake of the Covid-19 pandemic.
The deal resolves another issue by ensuring that
(Updates with comment from Hungary in 19th paragraph)
--With assistance from
To contact the editors responsible for this story:
Christopher Anstey, Paul Gordon
© 2021 Bloomberg L.P. All rights reserved. Used with permission.