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Global tax agreement expected by the end of June – POLITICO



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An agreement to revise the global tax system – a major milestone after years of political wrangling – is due to be announced by the end of the month, according to four officials.

The announcement, which is still under negotiation and could slide into the next month, would allow countries around the world to tax Facebook and Amazon while creating a global minimum tax rate to prevent multinational corporations from shifting profits to low-tax countries, officials said spoke on condition of anonymity because they were not authorized to speak publicly about the ongoing conversations.

“It looks like we will come together at all these different meetings and then a new phase of taxation will take place worldwide and we will end the race to the bottom,” German Finance Minister Olaf Scholz told reporters on Thursday without confirmation give June agreement date. “We have worked so hard. We are now trying to make all the breakthroughs at the G7 finance ministers meeting.”

Some smaller countries, particularly Ireland, whose low corporate tax rate has attracted many multinational corporations to locate them locally, are still struggling to maintain their national taxes to keep the global minimum corporate tax rate from wooing their ability to operate internationally. It is unclear whether agreement on this part of the agreement can be reached amid ongoing political tensions.

Still, there are some key sticking points that need to be addressed by June 30th.

Questions remain as to whether China, the world’s second largest economy, will join the deal, while several industries such as financial services are campaigning hard to be excluded from the potential deal.

Negotiators also need to figure out how to untangle numerous domestic taxes on digital services from France, the UK and other countries that would need to be lifted for a global tax system overhaul to be finally approved. Similarly, U.S. officials have raised concerns about an upcoming digital levy to be proposed by the European Commission, although officials stressed that Brussels’ plans are unlikely to undo year-long talks to reach an agreement.

The administration of US President Joe Biden had proposed shifting the focus of global tax talks to big tech firms alone to include the 100 largest companies in the world, including many of the biggest names in Europe – a move that broke the talks and probably the first major overhaul of the global tax system in decades. Officials warned that talks were still ongoing and details of the final plan could change until June 30.

G20 finance ministers will meet on July 9-10 to approve an agreement and a powerpoint presentation on the current proposals was shared with governments around the world last week, officials who spoke to POLITICO. Two other officials said approval of technical details on the complex global pact would take another month and would likely be announced by October.

Under the current deal, which is part of negotiations between more than 130 countries overseen by the Organization for Economic Co-operation and Development, the world’s largest companies – everyone from Apple to Amazon and Total to Volkswagen – would earn their global income via one tax a certain amount in addition in all countries in which they were active locally.

The final global agreement is expected to mirror that of the G7 finance ministers, who proposed that all countries have the right to tax at least 20 percent of a company’s profits within their borders as long as a company’s profit margin is above 10 percent.

To ensure that companies like Amazon, whose total profit margin is less than 10 percent, are included in the global deal, negotiators are suggesting that some of the company’s activities be included in the tax deal, even if their overall business is outside the scope, said two of the officials . This allows the e-commerce giant’s cloud business, whose profit margins are around 30 percent, to be taxed anywhere it operates globally, even though Amazon’s overall profit margin is too low to fall into global tax reform.

The compromise to include the US technology company was viewed by some European governments as non-negotiable. They said the e-commerce giant benefited disproportionately from higher sales during the COVID-19 pandemic, but its activities were still not locally taxed as most of the company’s European operations were based in Luxembourg, the two added Officials added.

“It is a question of justice,” said the French Minister for Economic Affairs, Bruno Le Maire, to reporters in Luxembourg on Thursday. “I remind you that the biggest winners of the economic crisis are the digital giants. And they are the ones who pay the least taxes. For the sake of fairness, that means that all digital giants, without exception, including Amazon, understand that they are paying their fair share of the taxes. “

The second part of the upcoming deal would set a global minimum corporate tax rate of likely 15 percent – a figure that will allow few governments to offer tax breaks to companies in order to reduce their overall tax obligations.

If this deal is confirmed, it would be a blow to countries like Hungary and Ireland, which have pursued industrial policies to lure international companies to their shores through low corporate tax rates in hopes of offsetting those income losses through other levies like income tax and higher economic output . Other governments have criticized such practices for allowing some of the world’s largest corporations to significantly reduce their tax obligations around the world.

Ireland’s Deputy Prime Minister Leo Varadkar told reporters last week that Dublin would defend the current tax rate of 12.5 percent, and those close to the ongoing negotiations said countries with low tax rates are struggling to keep the right to their own determine national tax policy. However, US Treasury Secretary Janet Yellen told lawmakers on Wednesday that all EU countries would approve the upcoming deal, a potential ploy to help the reluctant EU governments to back the deal.

“I have had very constructive bilateral talks with the Irish Treasury Secretary and believe that he will work with us to try to raise the global minimum tax, although this is a very momentous matter for Ireland,” she said. Le Maire said he would meet with his Irish counterpart to discuss how any issues related to a global deal could be resolved.

One reason for a possible agreement on a global minimum corporate tax rate, according to one of the officials, was a proposed change to the US tax system that would make it harder for companies to avoid taxes by parking their earnings in low-interest countries. Tax jurisdictions.

In 2017, the US Congress imposed taxes on so-called Global Intangible Low Taxed Income (GILTI), which targeted patents and other corporate intellectual property that could easily be relocated to low-tax countries.

Biden has proposed doubling the GILTI tax rate to 21 percent and requiring companies to calculate it based on their earnings in each country they operate in rather than on a company’s total overseas operations. This change could potentially destroy the ability of other countries to offer lower tax rates as global corporate income would be captured by the proposed revision of the US tax system.

US Republican politicians, however, are reluctant to make these domestic changes because they believe they will undermine America’s economic competitiveness against foreign rivals.

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