Video Source: YouTube, CNBC International TV
By David McHugh and Martin Crutsinger
The finance ministers of a group of 20 countries will seek agreement on a proposal backed by US President Joe Biden to prevent tax avoidance by multinational corporations.
Although radical tax approval is expected at the G20 meeting in Venice on Friday and Saturday, the proposal still faces significant hurdles in the US Congress, which the Republicans have vowed to oppose.
Biden’s 15% global corporate minimum tax proposal has provided a breakthrough in deadlocked international tax negotiations. An agreement was reached between 131 countries on 1 July in negotiations convened by the Paris-based Organization for Economic Co-operation and Development.
This transaction is often intended to discourage the use of complex accounting schemes to move profits to where the lowest taxes are paid.
The OECD agreement requires the country in which the company is headquartered to establish a minimum tax for the company to pay taxes domestically. Even if they transfer profits to overseas low-tax country subsidiaries, so-called tax havens. Countries have reduced tax rates to attract revenue. This is a move that US Treasury Secretary Janet Yellen has described as a global “race to the bottom” that can stop the proposal.
Another part of the tax package is taxing some of the profits of large, profitable companies that have no physical presence in the country but make significant amounts of money through digital businesses such as online retail and advertising. Allows you to.
With all 20 member states accounting for more than 80% of the world economy signing the agreement in the OECD, the G20 Finance Minister is expected to approve the agreement. Agree means more technical work in the OECD, followed by final approval at the 20 Leaders Summit in Rome, October 30-31, hosted by Italy, which has a rotating G20 chair. Bid will be made.
Adam Posen, chairman of the Peterson Institute for International Economics, said this is an opportunity that the United States and the world should not miss. Asked by a non-economist how to explain the deal, he said: This deal can be stopped calmly, so stop this kickback game played by some of these countries. “
However, there are political issues to be resolved. For one thing, there is friction in the EU’s plan to impose what is called “digital taxation” to help pay for pandemic recovery spending.
The OECD agreement promises countries to withdraw or withhold their own digital service taxes, primarily for US tech companies such as Google and Amazon. This is an important request from the Biden administration that sees such one-sided taxes as unfair trading practices. European officials have downplayed concerns that their digital taxes will not conflict with the OECD agreement. US authorities are not convinced. The EU has not announced plans until later this month, and the details are unclear.
And while Biden succeeded in winning the support of the deal on the international stage, he faces Republican opposition in the US Congress.
The United States has already taxed the foreign earnings of large corporations, but Biden is about to double that rate to 21%. As part of a broader plan to raise funds for investment in infrastructure and clean energy, the government is further calling on Congress to raise the U.S. domestic corporate tax rate from the current 21% to 28%. .. Global minimum support is considered to support Biden’s plan to pass through the country.
Texas Rep. Kevin Brady, head of the Republican tax committee, said, “This is an economic surrender to China, Europe, and the world, and Congress will reject it,” the OECD agreement. Blame.
Posen of the Peterson Institute for International Economics said it would be difficult to understand how global trading works without the participation of the United States. It is very difficult to imagine Europe, Japan and China joining this without the intervention of the United States. “
The administration plans to avoid the need to win 60 votes in evenly divided 50-50 Senates by using a legislative tool called budget adjustment. It only requires a majority vote to pass foreign profit margins. Some of the transactions that allow a country to tax a company that does not physically exist will require the country to sign a diplomatic agreement. On tax issues, Posen said the Senate is likely to be a treaty that requires a two-thirds majority. Despite the provisions to eliminate awkward country digital taxes on US tech companies, that can be difficult given the partisan environment.
Republicans continue to oppose tax increases, but Moody’s Analytics Chief Economist Mark Zandi believes the Biden administration can achieve much of what it wants in the tax sector, both domestically and internationally.
Mark Zandi, Chief Economist at Moody’s Analytics, said: “The company is doing very well and making a profit.”
Crutsinger contributed from Washington, DC. Associated Press writer Sylvie Corbet contributed from Paris.