Finance Ministers Meet in Venice to Finalize International Tax Settlement

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VENICE, Italy – The world’s leading business leaders gather on Friday to discuss key details on the largest overhaul of the international tax system in a century and to start a three-month race to close a deal by the end of the year.

This ancient center of international trade is where the Treasury Ministers of the Group of 20 Nations gather as they advance plans to end global tax havens and force multinational corporations to pay a fair share of taxes wherever they operate. The negotiations, which will have far-reaching implications for the finances of global corporations, have been going on for much of the past decade and are moving into what officials hope will be the final leg.

“There are still a few big weeks and months ahead of us,” said Pascal Saint-Amans, director of the Center for Tax Policy and Administration at the Organization for Economic Co-operation and Development, which is leading the talks, in a short interview ahead of the summit.

The meetings follow a breakthrough in negotiations that took place last week when 130 countries endorsed a conceptual framework for the new tax plan. The blueprint includes a minimum global tax of at least 15 percent that any country would introduce and new rules that would force tech giants like Amazon and Facebook and other large global corporations to impose taxes in countries where their goods or services are sold pay even if they have no physical presence there.

Officials hope to reach an agreement by October when G20 leaders return to Italy for the final summit of the year.

Much is at stake in meeting this deadline, especially for the United States. The deal aims to put an end to a cascade of taxes on digital services that many countries around the world, including France, the UK, and Italy, are enacting in order to generate more tax revenue from American tech companies. The United States has called these taxes discriminatory, and the Biden administration has approved retaliatory tariffs on wine, cheese, clothing, and other products from these countries that could go into effect later this year if an agreement is not reached.

The United States wants European countries to lower their taxes on digital services immediately, but policy makers have suggested it could stay in place until a new deal is fully passed, which could take years.

The European Union is also promoting a new digital tax during the OECD tax talks. Finance Minister Janet L. Yellen is expected to urge her counterparts in the European Union to postpone such a move when she visits Belgium next week after her two-country trip is over.

There are other unanswered questions to resolve this weekend and in the months ahead, including the exact rate global businesses are facing.

Ahead of the meetings, Treasury officials said countries have yet to agree on a global minimum tax rate that the United States and France want higher than 15 percent. Other low-tax countries, such as Ireland, have so far refused to join the deal, and the G20 must decide how to get these refusers to agree to the tax.

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July 8, 2021, 3:31 p.m. ET

Saint-Amans said he believed reluctant countries like Ireland would join the deal if the United States could pass reforms through Congress – something he believes is not guaranteed. Republican lawmakers have expressed skepticism about the global minimum tax, also because they see it as a stalking horse for the Biden administration to raise the US corporate tax rate.

President Biden tied his proposal to raise the corporate tax rate in the United States from 21 percent to 28 percent to a global minimum tax, saying it would discourage companies from simply moving their business overseas. Republicans, who cut the corporate tax rate from 35 percent to 21 percent in 2017, have said they will oppose changes to these tax cuts.

Treasury officials have expressed confidence that the global tax can stand in the United States. But officials have not made it clear whether the White House believes it will win the support of reluctant Republicans or whether they can only get the tax changes through Congress with a Democratic vote. Texas Representative Kevin Brady, the top Republican on the Ways and Means Committee, told reporters this week that he believed the Biden administration’s proposed tax reform would be dead upon arrival in Congress.

“First, I think this is an economic surrender that other countries will be happy to go along with while America is making itself so uncompetitive,” said Brady. “And second, I think there are too many competing interests here for them to get an agreement that Congress would approve.”

Other nations must also decide how to translate their obligations into domestic law.

The mechanisms of changing the taxation of the largest and most profitable companies, as well as exemptions for financial services, oil and gas companies, will also be at the center of discussions. There are already concerns that carve-outs could lead to new tax loopholes.

This weekend it’s not just the tax that is on the agenda. Ms. Yellen will be working with her international colleagues on a plan to provide developing countries with more help in fighting the coronavirus pandemic and to use vaccines more widely.

Despite robust global economic expansion this year, the International Monetary Fund warned this week of a deteriorating “two-pronged recovery”, saying that “worsening economic divergence” is leaving a large number of countries behind.

Ms. Yellen, who is on her second trip abroad as Finance Minister, will hold bilateral meetings with many of her counterparts, including officials from Saudi Arabia, Japan, Turkey and Argentina. China, which signed the global minimum tax framework, is not expected to send officials to the meeting of finance ministers and central bank governors, so there will be no discussions between the world’s two largest economic powers.

The forum will provide another opportunity for the Biden administration to demonstrate the United States’ renewed commitment to multilateralism.

Saint-Amans was optimistic about the way the tax negotiations, which were centered on life support in the last year of the Trump administration, attributed this largely to the United States’ new diplomatic approach.

“It took a US election and some work at the OECD,” he said.