Finance Ministers Meet in Venice to Finalize Global Tax Agreement
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VENICE, Italy — The world’s top economic leaders are convening on Friday to hash out crucial details of what would be the largest overhaul of the international tax system in a century, kicking off a three-month race to finish a deal by the end of the year.
Gathering in this ancient hub of international commerce, finance ministers from the Group of 20 nations are pressing ahead with plans to put an end to global tax havens and force multinational corporations to pay an appropriate share of tax wherever they operate. The negotiations, which will have sweeping ramifications for the finances of global businesses, have been sputtering along for much of the last decade and are entering what officials hope to be the final stretch.
“A few big weeks and months are ahead,” Pascal Saint-Amans, director of the center for tax policy and administration at the Organization for Economic Cooperation and Development, which is overseeing the talks, said in a brief interview ahead of the summit.
The meetings follow a breakthrough in the negotiations that came last week when 130 countries backed a conceptual framework for the new tax plan. The blueprint includes a global minimum tax of at least 15 percent that each country would adopt and new rules that would force technology giants like Amazon and Facebook and other big global businesses to pay taxes in countries where their goods or services are sold, even if they have no physical presence there.
Officials hope to complete a deal by October, when the leaders of the G20 countries return to Italy for the last summit of the year.
The stakes to meet that deadline are high, particularly for the United States. The agreement is intended to put an end to a cascade of digital services taxes that many countries around the world, including France, the United Kingdom and Italy, are adopting to capture more tax revenue from American technology companies. The United States has called those taxes discriminatory, and the Biden administration has approved retaliatory tariffs on wine, cheese, clothing and other products from those countries that could go into effect later this year if a deal is not reached.
The United States wants European countries to drop their digital services taxes immediately, but policymakers have suggested that they could remain in place until a new agreement is fully enacted, which could take years.
The European Union is also pressing ahead with a new digital levy even as the O.E.C.D. tax talks proceed. Treasury Secretary Janet L. Yellen is expected to urge her European Union counterparts to delay such a move when she visits Belgium next week at the conclusion of her two-country trip.
Other outstanding issues remain to be worked out this weekend and in the coming months, including the exact rate that global companies would face.
Ahead of the meetings, Treasury Department officials said that the countries still need to settle on a global minimum tax rate, which the United States and France would like to be higher than 15 percent. Other countries with low tax rates, like Ireland, have so far refused to sign on to the agreement, and the G20 nations must determine how to coax those holdouts into agreeing to the tax.
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Mr. Saint-Amans said he believed that reluctant countries such as Ireland would come around to join the agreement if the United States was able to pass the reforms through Congress — something he acknowledged was not guaranteed. Republican lawmakers have expressed some skepticism about the global minimum tax, in part because they see it as a stalking horse for the Biden administration to raise the U.S. corporate tax rate.
President Biden has tied his proposal to raise the corporate tax rate in the United States to 28 percent from 21 percent to a global minimum tax, saying that it would dissuade companies from simply moving operations offshore. Republicans, who cut the corporate rate from 35 percent to 21 percent rate in 2017, have said they will oppose any changes to those tax cuts.
Treasury officials have expressed confidence that the global tax can pass muster in the United States. But officials have not made clear whether the White House believes it needs to gain the support of reluctant Republicans or if they can push the tax changes through Congress only with votes from Democrats. Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee, told reporters this week that he believed the Biden administration’s proposed tax overhaul would be dead on arrival in Congress.
“I think first, this is an economic surrender that other countries are glad to go along with, as long as America is making itself that uncompetitive,” Mr. Brady said. “And secondly, I think there are too many competing interests here for them to finalize a deal that would be agreeable to Congress.”
Other nations must also determine how to turn their commitments into domestic law.
The mechanics of changing how the largest and most profitable companies are taxed and exceptions for financial services, oil and gas businesses will also be central to the discussions. There are already concerns that carve-outs could lead to new tax loopholes.
Tax is not the only matter on the agenda this weekend. Ms. Yellen will be working with her international counterparts on a plan to provide more aid to developing countries to combat the coronavirus pandemic and how to deploy vaccines more widely.
Despite a robust global economic expansion this year, the International Monetary Fund warned this week of a worsening “two-track recovery” and said that a “deepening divergence in economic fortunes” is leaving a large number of countries behind.
Ms. Yellen, who is making her second international trip as Treasury secretary, will be holding bilateral meetings with many of her counterparts, including officials from Saudi Arabia, Japan, Turkey and Argentina. China, which signed on to the global minimum tax framework, is not expected to send officials to the gathering of finance ministers and central bank governors, so there will be no discussions between the world’s two largest economic powers.
The forum will be another opportunity for the Biden administration to demonstrate the renewed commitment to multilateralism from the United States.
Mr. Saint-Amans expressed optimism about the trajectory of the tax negotiations, which were on life support during the final year of the Trump administration, and attributed that largely to the new diplomatic approach from the United States.
“It took a U.S. election, and some work at the O.E.C.D,” he said.