G-20 to Seek Agreement on Global Minimum Tax Rate by Mid-2021 -- 2nd update
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
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
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
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
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
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
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
--Yuka Hayashi and Richard Rubin contributed to this
Write to Paul Hannon at firstname.lastname@example.org
(END) Dow Jones Newswires
April 07, 2021 14:03 ET (18:03 GMT)
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