By Paul Hannon 

Finance ministers from the Group of 20 leading economies Wednesday said they hope to agree on a minimum tax rate for company profits by the middle of this year as part of a wider overhaul of the way international businesses are taxed.

The finance ministers met virtually two days after Treasury Secretary Janet Yellen argued for a global minimum corporate tax rate, seeking international cooperation that is crucial to funding the Biden administration's $2.3 trillion infrastructure proposal.

Italian Finance Minister Daniele Franco said after the meeting that Ms. Yellen had stressed the need for a minimum rate and that her proposal was consistent with the G-20's ambitions.

Mr. Franco, who chaired the meeting, said that while finance ministers have yet to resolve some issues needed to bring yearslong talks on overhauling the international tax system to a successful conclusion, they are hopeful of meeting a self-imposed deadline and sealing an agreement at their next meeting.

"What we see this year is an acceleration in the process, and the G-20 is expecting to reach an agreement in July," Mr. Franco said.

Since October 2019, the G-20 has been negotiating on the basis of a framework developed by the Paris-based Organization for Economic Cooperation and Development that includes a minimum tax rate but also a new way of assigning the profits to be taxed among countries.

Because that new approach focuses more on where businesses have their customers than where their headquarters are located, it would lead to more taxation of U.S. technology companies in Europe and other countries and less in the U.S. In return, the U.S. would be able to raise more taxes from European and other companies selling to American customers.

Mr. Franco said the G-20 remained focused on agreeing on both of those changes as a package.

While a minimum tax rate appears to have widespread backing among governments around the world, one issue that may prove difficult to settle is the level at which that rate would be set.

President Biden is proposing to raise the corporate tax rate to 28% from 21%, which would push the U.S. from the middle of the pack among major economies to near the top. The Biden plan would also impose a 21% minimum tax on U.S. companies' foreign income.

If the U.S. raises its tax rates and imposes higher burdens on U.S. companies' foreign profits, a global minimum tax would help prevent companies based in other countries from having a potentially big competitive advantage in the form of lower tax costs.

Governments began to look for new ways of closing loopholes and reducing tax avoidance by international businesses in the wake of the global financial crisis, when their debts soared. The search for new ways to limit avoidance and increase revenues has been made more urgent by the Covid-19 pandemic, which has also seen a surge in debts. The U.S. alone has pledged roughly $5 trillion in fiscal spending since last spring.

The International Monetary Fund on Wednesday said government debt worldwide rose to a record 97% of global output last year from 84% in 2019, and it is projected to stabilize around 99% of global gross domestic product this year.

The Biden administration is confident that the negotiations toward a global minimum tax can succeed, Treasury officials said on Wednesday

Ms. Yellen described the lowering of corporate tax rates over recent decades as a race to the bottom and a self-defeating competition in which countries undercut each other in their efforts to draw foreign investment and jobs.

"The tax plan incentivizes the whole world to give up the game," she told reporters on Wednesday.

That incentive is in the form of a penalty: a provision that would deny tax deductions to companies that send payments from the U.S. to related entities in low-tax jurisdictions where they pay less than the internationally agreed-upon minimum tax. Or, if there's no agreement, the denial would apply to countries that haven't adopted the minimum-tax rate that applies to U.S. companies -- 21% under the Biden administration's plan.

Separately, the Biden administration wants to impose a 15% minimum tax on corporations that report large profits to investors but low tax payments. The Treasury said Wednesday that the minimum tax would apply only to companies with income exceeding $2 billion -- far more than the $100 million threshold Mr. Biden touted during his election campaign.

While European governments mostly support a global minimum tax rate, with Germany a particularly enthusiastic backer, they are more interested in the other changes to taxation that have been under negotiation over recent years.

European governments believe U.S. technology companies should pay them more tax, and they have launched a variety of special levies on digital services, partly to raise revenue and partly to maintain pressure for a global agreement. Because those levies threaten to tax the same profit more than once, technology businesses strongly object and have said they would prefer a globally agreed reform.

"We are encouraged by the G20's commitment to reach consensus on ambitious global tax reform this year," said Christian Borggreen, vice president of the Computer and Communications Industry Association, a lobby group. "An updated international tax system can provide legal certainty for all and help spur economic recovery."

--Yuka Hayashi and Richard Rubin contributed to this article.

Write to Paul Hannon at paul.hannon@wsj.com

 

(END) Dow Jones Newswires

April 07, 2021 14:03 ET (18:03 GMT)

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