The Group of 20 finance ministers endorsed plans for a global tax agreement at a meeting in Venice, Italy, on 9 and 10 July.
The G20 support of the tax deal was expected, after 130 members of the OECD Inclusive Framework on BEPS earlier this month joined a new two-pillar plan to reform international tax rules and set a global minimum tax rate of at least 15%.
Seven OECD Inclusive Framework members, including Ireland, Estonia and Hungary in the EU as well as Barbados and St. Vincent and the Grenadines in the Caribbean, have so far withheld their agreement to the plan.
Although low-tax jurisdictions are the express target of the global minimum corporation tax, the Cayman Islands and fellow-offshore financial centres Bermuda, the British Virgin Islands, Guernsey and Jersey have joined the agreement, in part to resolve technical and practical concerns with the plan in the ongoing negotiations.
In a communiqué, the G20 finance ministers urged “all members of the OECD Inclusive Framework that have not yet joined the agreement to do so”.
They also called on all countries in the negotiations to “swiftly address the remaining issues and finalise the design elements” in time for the next G20 meeting in Rome, Italy, in October.
Agreeing a global minimum corporate tax rate
At that meeting, G20 leaders are expected to set a global minimum corporate tax rate and allocate detailed rights between countries to tax the activities of the largest multinational companies.
German Finance Minister Olaf Scholz was optimistic that all European countries would eventually be on board, while Bruno Le Maire, France’s finance minister, said “there is no turning back” from international tax reform.
Le Maire agreed with Scholz and US Treasury Secretary Janet Yellen that the minimum corporate tax rate globally should be higher than 15%.
He also advocated to increase the share of profits that can be taxed in countries where multinationals generate revenue from the currently-agreed 20% to 25% over 10% of revenues.
Yellen said the G20 would attempt to convince the holdout countries, but noted their agreement was not needed to move ahead with the tax reform deal. “It’s not essential that every country be on board,” she said.
“There’s more work to be done, but I’m really hopeful that with the growing consensus we’re on a path to a tax regime that will be fair for all of our citizens,” she added.
The bigger potential stumbling block is the support needed from Congress to ratify the tax agreements in the United States together with other tax proposals by the Biden administration.
Both Democrats and Republicans have expressed reservations about the plan.
But Yellen said she was very optimistic that Congress would pass legislation that would bring the US into compliance with so-called Pillar 2, which sets the minimum corporate tax rate.
The Treasury Secretary suggested it could be included in a fast-track budget bill that will go to Congress later this year.
“The details of Pillar 1 remain to be negotiated,” she said. “We will work with Congress – maybe will be ready in the spring of 2022 – and try to determine at that point what’s necessary for implementation.”
Yellen did not address if the Pillar 1 reforms will be treated as an international treaty, which would require two-thirds of votes in the Senate.
Meanwhile, EU plans for a digital tax targeted at predominantly US tech companies have irked Treasury officials who described it as a threat to finalising the tax agreement by October.
As Yellen stayed in Europe this week to convince EU officials to abandon the proposed digital levy, EU officials maintained the plans were necessary in case OECD tax negotiations would not lead to the desired outcome.