G-20 finance chiefs vow to overcome tax deal hurdles

Bloomberg

Top officials from the US, Germany and France each expressed confidence that a global tax deal endorsed at the Group of 20 meeting in Venice has enough momentum to overcome political obstacles in Washington and within the European Union (EU) in time for it to be finalised in October.
“There’s more work to be done, but I’m really hopeful that with the growing consensus we’re on a path to a tax regime that will be fair for all of our citizens,” US Treasury Secretary Janet Yellen told reporters on the sidelines of the meeting.
Yellen was particularly confident that the US Congress would pass legislation needed to implement at least part of the proposed deal.
“I’m very optimistic that the legislation will include what we need for the US to come into compliance with pillar 2,” Yellen said, referring to the minimum tax rate
portion of the plan.
German Finance Minister Olaf Scholz said he believes European holdouts Ireland, Hungary and Estonia would be brought on board.
“This is a big historic moment. The G-20 has now reached an agreement here for new rules on international taxation to be introduced,” he said.
A total of 132 countries and jurisdictions last week backed a two-part agreement aimed at making multinational companies pay more tax in places where they operate and set a minimum corporate rate.
France’s Finance Minister Bruno Le Maire said “there is no turning back” from the G-20 officials giving their stamp of approval.
“It will be implemented and we will have built this international taxation system for the 21st century,” Le Maire said.
Yellen and Scholz hailed the deal as killing off a competition among countries seeking to attract corporations with lower and lower taxes, depriving governments of needed tax revenue.
“This is a kind of global race to the bottom that’s been occurring and a race that nobody has won,” Yellen said. “It’s deprived all of us of the resources we need to invest in our people, our workforce, our infrastructure and it’s wonderful to see that it can now come to an end.”
Getting that finalised, however, will require support from Congress, where many Republican lawmakers and some Democrats have expressed serious reservations about both so-called pillars of the deal.
Yellen said she has engaged in talks with the Democratic leaders of key congressional committees on the Biden administration’s tax proposals. These would cover not only the international agreement but also measures needed to pay for the new president’s ambitious plans to invest in infrastructure and other priorities over the next decade.
The Treasury chief said changes necessary to comply with the minimum corporate taxes could be passed alongside other Biden proposals through a process known as budget reconciliation that won’t require Republican support in the closely divided legislature.
“Congress is negotiating a budget resolution that we expect to result in a reconciliation bill,” she said.
Following Yellen’s remarks, a Treasury official said the administration sees approval for pillar 1, which proposes a redistribution of corporate tax rights on multinational firms, as moving forward on a different schedule.
That part of the deal won’t be approved until next year at the earliest, said the official, who commented on condition of anonimity because they weren’t authorized to speak publicly.
2023 Target
“We aim to have a full implementation of this international taxation system no later than 2023,” Le Maire said. “We should not lose the impetus.”
Scholz and other European leaders face their own internal fights to get the agreement adopted across the 27-member bloc.
Ireland, Hungary and Estonia have so far refused to sign up to the minimum tax, creating a potential roadblock because of the need for unanimity on tax issues within the EU.
The EU commission is working on a directive to implement the global tax deal and Scholz has expressed optimism the three countries will eventually back the deal. They are opposed to an effective minimum tax of 15%.
Besides possible implementation challenges in the U.S. and Europe, there are also issues that remain to be settled between advanced and developing countries, and high and low tax jurisdictions.