The G7 agreement revitalizes international cooperation

The tax deal that the world’s leading developed nations reached this weekend is the first substantive evidence of a revival of international cooperation since President Joe Biden brought the United States back to the negotiating table; However, there is still a long way to go before it is implemented.

“This is a starting point,” the French finance minister said. Bruno the mayor. “In the coming months we will struggle to ensure that the minimum corporate tax rate is as high as possible.”

The agreement aims to fill in the loopholes that multinational companies have taken advantage of to cut their taxes, ensuring that they pay more in the countries in which they operate.

The G7 endorsed a minimum global tax rate of at least 15 per cent, and agreed that countries should have the right to tax a certain percentage of the profits of the largest and most profitable multinational corporations where they are generated.

However, much remains to be decided in the broader global negotiations, which are taking place among 139 countries at the headquarters of the Organization for Economic Co-operation and Development in Paris. The first hurdle facing the G7 deal is support from the Group of 20 nations, which will meet in Venice next month.

while the Organization for Economic Cooperation and Development It is estimated that the proposals could generate additional tax revenue of between $50 billion and $80 billion annually, and the actual amount raised would vary depending on the technical details of the potential global deal.

Two factors have a special effect: the rate at which the minimum is set and whether countries that apply the minimum will tax income generated in countries that do not apply it. The magnitude of the effect is sensitive to this second point, known as the “jurisdictional group” or “country-by-country supplementation.”

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NGOs have criticized the lower rate of 15 per cent as being too low. IPPR, a British think tank, pointed out that “it will not be enough to end the race to the bottom.”

Gabriel Zucman, economical University of CaliforniaAnd the BerkeleyHe said in a tweet on Twitter that the deal is “historic, inappropriate and promising,” because while the 15 percent rate is very low, there is no objection to reaching a higher rate.

The minimum rate, he said, “reduces incentives for multinational companies to record profits in tax havens,” adding that for the minimum to be reached “it must be on a country-by-country basis,” because otherwise companies would be able to use tax havens to offset the rates. which is more than 15 percent.

Ministers and officials in talks G7 They emphasized that this does not mean that the world has agreed to changes to international taxation, let alone that the plan will work. Instead, they presented it as an attempt to advance global negotiations.

Following this announcement, the Irish Finance Minister said, Easter Holiday DonohoeHe tweeted: “Now I look forward to participating in the discussions at Organization for Economic Cooperation and Development… any agreement must meet the needs of countries large and small, developed and developing.”

Global talks must reconcile the competing priorities of countries into two components, the “pillars”.

The first, most important to the UK, France and Italy, seeks to ensure that the world’s largest companies – especially US digital giants – Facebook social networking siteAnd the The Google s an Apple– Pay more taxes in their own countries.

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Rishi Sunak, Adviser United kingdomThe agreement ensures that “the right companies pay the right taxes in the right places,” he said, referring to the first pillar.

In contrast, the Secretary of the Treasury United StateAnd the Janet YellenShe did not mention this in her prepared notes, focusing on the second pillar: a global minimum rate of “at least 15 percent”. This will generate more revenue for the federal government in Washington.

The first requires a global agreement and legislation I that Congress must approve, while the second – that Organization for Economic Cooperation and Development It estimates that it will generate most of the additional revenue – it can be implemented unilaterally, but it will work better if many countries join in.

One column faces opposition in Washington. FranceAnd the Italy s United kingdom Refuse to cancel their digital taxes even I Pass the relevant legislation. Canadian Finance Minister, Chrystia FreelandHe said that after an agreement G7, that your country intends to move forward with introducing a digital tax as well.

Besides these initial questions, there are still many unanswered technical questions that can make a big difference to the practical implications of a potential deal, including which businesses it will fall under, and how the tax base is determined.

Some ministers said privately that the need to reach an agreement on the G7 It was meant to show that rich countries still matter, trying to show the world that the 21st century will not be dominated by the rules set by China.

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