By Richard Rubin, Paul Hannon and Sam Schechner
An agreement by wealthy countries to impose minimum taxes on
multinational companies faces a rocky path to implementation, with
many governments likely to wait and see what others, especially a
divided U.S. Congress, will do.
Treasury Secretary Janet Yellen hailed the deal, reached by
finance ministers of the Group of Seven leading nations over the
weekend in London. She called it a return to multilateralism and a
sign that countries can tighten the tax net on profitable firms to
fund their governments.
The agreement represents a turning point in long-running
negotiations over where and how corporate profits should be taxed.
The deal would impose a minimum tax of at least 15% and give
countries more authority to tax the profits of digital companies
like Apple Inc. and Facebook Inc. that dominate global markets but
pay relatively little tax in many countries where they operate.
While the impact on tech companies remains uncertain, some
welcomed the prospect of a more uniform global regime. Nick Clegg,
Facebook Inc.'s vice president of global affairs, said on Twitter
that the deal is a "step toward certainty for businesses" when it
comes to taxes.
New tests come soon and in the months ahead, as details get
hashed out and governments see which country goes first. Those that
move ahead before others could damage their revenue bases and
companies, according to tax experts, and those lagging behind a
global consensus could be hurt too.
"While we may see a deal, it's then potentially 18 months or
more to push it into the domestic law of each of the countries,"
said Monika Loving, national practice leader for international tax
services at advisory firm BDO. "In terms of revenue impact, we're
maybe two years off seeing tax administrations collecting any
At the center of attention, some tax specialists, lawyers and
officials said, is the U.S. Congress.
In countries with parliamentary systems, governments can quickly
deliver on pledges, turning them into local laws and regulations.
In the U.S., however, a slim Democratic majority in the House, an
evenly split Senate, antitax Republicans and procedural hurdles
Other countries may be reluctant to change their laws or remove
taxes that hit U.S.-based tech companies without seeing Congress
U.S. lawmakers may take the reverse view, wary of raising taxes
or ceding tax authority to other nations without assurances of a
complete global accord that would minimize any disadvantages of a
U.S. corporate headquarters.
Democrats can pass some changes on their own but have
differences among themselves over tax policy. The Biden
administration has also called for raising the corporate tax rate
to 28% from 21% and setting the minimum tax on U.S.-based companies
at 21% to fund other initiatives. And some Democrats have balked at
those higher rates.
Republican votes may be needed if countries' minimum tax changes
necessitate renegotiating tax treaties, which require two-thirds
votes in the Senate for ratification.
The top tax-writing Republicans in Congress -- Rep. Kevin Brady
of Texas and Sen. Mike Crapo of Idaho -- noted that the U.S.
already imposed a form of minimum tax at 10.5% in 2017 and that
other countries haven't followed.
"We continue to caution against moving forward in a way that
could adversely affect U.S. businesses, and ultimately harm
American workers and jobs at a critical time in our country's
economic recovery," they said.
The G-7, which comprises Canada, France, Germany, Italy, Japan,
the U.K. and the U.S., agreed that businesses should pay a minimum
tax rate of at least 15% in each of the countries in which they
They also agreed to new rules that change which countries can
tax which income in the increasingly digital economy. Those new
rules will focus on large global businesses that have a profit
margin of at least 10%. The right to tax 20% of profits above that
threshold would be shared among governments.
The deal faces an early test in the Group of 20 leading
economies, which includes all of the G-7 and a number of large
developing countries such as China, India, Brazil and South Africa.
Finance ministers from the G-20 meet in Venice in early July, and
an overhaul of global tax rules is on the agenda.
Buy-in will also have to come from a broader group of 135
countries in what is known as the Inclusive Framework. Some
countries with very low tax rates -- such as Ireland, with a 12.5%
charge on profits -- are reluctant to sign up. The U.S. has
proposed tax changes that would penalize companies from countries
that don't impose the minimum taxes.
"We'll have to convince the other great powers, especially the
Asian ones. I am thinking in particular of China," France's finance
minister, Bruno Le Maire, said in a television interview this
weekend. "Let's face it, it's going to be a tough fight. I am
optimistic that we will win it because the G-7 is giving us
extremely powerful political momentum."
While G-7 members agreed on the outlines of a new rulebook, they
also left some unfinished business.
A number of countries from Europe raised the stakes in the
long-running talks by announcing separate national levies on
digital businesses, hoping those would pressure the U.S. into an
international deal. In retaliation for what it saw as
discrimination against U.S. companies, the U.S. announced punitive
tariffs on imports from those countries, although it suspended
those tariffs until the end of this year.
The G-7 didn't agree on a schedule for removing those levies, a
sign that decision makers aren't sure exactly when new tax rules
might come into play. In their final statement Saturday after two
days of meetings, G-7 ministers said they would work on a path to
removing the levies that will be tied to the new rules coming into
The broader changes, if enacted, would affect many of the
world's largest and most profitable companies, particularly in the
tech sector. But the removal of the digital-services taxes would be
a silver lining for tech companies. They have long said they would
prefer an international resolution on taxes that result in higher
bills to a patchwork of national levies.
Some tech executives have expressed worry that countries will
attempt to hang onto their digital-services taxes even with a
global deal on corporate taxes.
Matthew Schruers, president of the Computer & Communications
Industry Association, which represents companies including Alphabet
Inc.'s Google and Facebook Inc., applauded the G-7 agreement
Saturday. However, he cautioned, "The work is not finished until
the digital taxes that unfairly target U.S. businesses have been
removed," he said.
Many big tech companies, including Apple Inc., Alphabet and
Facebook have in recent years already reported effective tax rates
roughly around the 15% minimum rate proposed by the G-7, according
to securities filings.
Companies that are below the rate, such as Apple, could see a
potential increase in its tax bill under the proposed deal in some
The tech company reported an effective global tax rate of 14.4%
for the year ended Sept. 26, 2020, citing lower tax rates on
A spokesman for Apple declined to comment.
Write to Richard Rubin at email@example.com, Paul Hannon at
firstname.lastname@example.org and Sam Schechner at email@example.com
(END) Dow Jones Newswires
June 06, 2021 18:14 ET (22:14 GMT)
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