The Group of Seven major rich countries has agreed to back new tax rules for companies that operate internationally in an important step towards a global deal that would offer the minimum rate sought by the Biden administration.
The deal, reached by Treasury chiefs at a meeting in London on Saturday, resolves long-standing tensions between the United States and major European economies that have at times threatened to plunge the international tax system into chaos and wreak havoc on the international tax system. trigger a transatlantic trade dispute.
As part of the deal, G-7 members will support a global minimum tax rate on corporate profits and a new way to share tax revenues from the world’s largest and most profitable companies. .
The G-7, which includes Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, agreed that businesses should pay a minimum tax rate of at minus 15% in each of the countries in which they operate.
SHARE YOUR THOUGHTS
Do you think there should be an overall minimum tax rate on international companies? Why or why not? Join the conversation below.
“The G-7 finance ministers today made a significant and unprecedented commitment that gives tremendous momentum towards achieving a strong global minimum tax at a rate of at least 15%,” said the secretary at Treasure Janet Yellen.
There are still important details to work out and the agreement is not enough for the new rules to be applied globally. For this to happen would require the support of the major economies of the Group of 20 – which includes China and India, among other developing economies – as well as the support of the 135 countries that negotiated the new rules as part of the what is known as an inclusive framework. G-20 Treasury chiefs are due to meet in Venice on July 9-10.
The United States, which already has some form of minimum tax on businesses based in the country, wants to toughen this levy and raise national tax rates to pay for the Biden administration’s new programs. Doing it unilaterally would increase the cost of having a head office in the United States, but if other countries imposed similar taxes on their businesses, the benefits of escaping from the United States would diminish. To encourage other countries to strike a deal, the United States has proposed denying certain tax deductions to U.S. operations of companies based in countries that do not impose minimum taxes.
The main goal of European countries has been to increase taxes on large digital companies such as Google Alphabet. Inc.
and Facebook Inc.,
most of which are based in the United States. To do this, an overhaul of the existing rules is needed, as they were designed for a time when companies needed to have a strong physical presence in a country, like a factory, in order to be able to make a profit there.
“Just because their business is online doesn’t mean they don’t have to pay taxes in the countries where they operate and from which they make their profits,” the treasury heads of France and Germany said on Friday. , Italy and Spain in a joint statement. âPhysical presence has been the historical basis of our tax system. This base must evolve with our economies gradually moving online. “
A number of European countries have raised the stakes of the long-running talks by announcing separate national levies on digital businesses, hoping this would pressure the United States to agree to an international deal. In retaliation for what it saw as discrimination against U.S. companies, the U.S. government announced a series of punitive tariffs on imports from those countries, although it suspended those tariffs until the end of this year.
The G-7 deal brings a possible increase in the tax bill for a number of digital businesses closer. The alternative to a deal was likely a series of overlapping national levies that could have had the same profit taxed multiple times in different places, an outcome digital companies were keen to avoid.
Big tech companies have long expressed support for an international resolution on how to distribute their taxes among countries. Business executives argue they need certainty in tax rules, rather than a patchwork of national taxes like those adopted in some European countries – and some privately agree that a global deal may mean an increase in their tax rate. tax invoice.
“A multilateral solution will help stabilize the international tax system,” Amazon.com said Inc.
the spokesperson said, adding: “The G-7 agreement marks a welcome step forward in the effort to achieve this goal.”
A Google spokesperson for Alphabet said on Saturday: “We hope countries continue to work together to ensure that a balanced and lasting deal is finalized soon.”
An Apple Inc.
spokesperson declined to comment. Facebook did not immediately respond to a request for comment.
The most difficult issue in the tax negotiations has been how to manage the largely American cadre of tech giants. European countries wanted these companies to pay more taxes in the countries where they do business. But the United States had rejected a deal that focused solely on tech companies as both discriminatory and obsolete given the increasingly digital nature of most industries, and that has been a consistent position under the Trump and Biden administrations.
Instead, the G-7 countries agreed to focus the new tax rules on large global companies that have a profit margin of at least 10%. They agreed that the right to tax 20% of profits above this threshold would be shared between governments.
This new approach, suggested by the United States, could face opposition in Congress, where some lawmakers are reluctant to take precedence over other countries. Some of the changes could force the US Senate to ratify the tax treaty changes, which would require a two-thirds vote and therefore at least some Republican support.
“The rationale departs from the original intent and appears to lack an articulated basis in tax principles beyond the populist appeal,” Sen. Mike Crapo (R., Idaho), the top Republican on the Committee of finances, wrote in a letter last month to Mrs Yellen.
If backed by the G-20 and the larger group of countries involved in the negotiations, the new rules would mark the most radical overhaul of international tax rules since the 1920s, when countries began negotiating a network of thousands. tax treaties that make up the existing system.
For advocates, a minimum tax rate would end what they call a “race to the bottom” in recent decades, as countries embarked on rounds of competitive tax cuts to keep people away. companies from each other.
The Biden administration has proposed raising the corporate tax rate to 28% from 21% and increasing the existing minimum tax on foreign profits of US-based companies to 21% from 10.5% all by strengthening the rules of this tax. It is not yet clear whether there is enough support in Congress, even among Democrats, to raise taxes so much.
Copyright Â© 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8