G20 backs landmark global tax reform

Finance chiefs of world’s 20 large economies endorse plan to stop multinationals shifting profits to low-tax havens.

Germany's Finance Minister Olaf Scholz talks to the media during a break at the G20 finance ministers and central bankers meeting in Venice [Andreas Solaro/AFP]
Germany's Finance Minister Olaf Scholz talks to the media during a break at the G20 finance ministers and central bankers meeting in Venice [Andreas Solaro/AFP]

Finance ministers of the G20 large economies have endorsed a landmark move to stop multinationals shifting profits to low-tax havens.

The ministers at Saturday’s meeting in the Italian city of Venice also acknowledged the need to ensure fair access to vaccines in poorer countries.

But a draft communique to be rubber-stamped at the meeting did not contain specific new proposals on how to do that.

The tax deal was set to be the biggest fresh policy initiative emerging from their talks.

It caps eight years of wrangling over the issue and the aim is for national leaders to give it a final blessing at an October G20 summit in Rome.

The pact would establish a global minimum corporate tax of at least 15 percent to deter multinationals from shopping around for the lowest tax rate.

It would also shift the way that highly profitable multinationals such as Amazon and Google are taxed, basing it partly on where they sell products and services, rather than on the location of their headquarters.

German Finance Minister Olaf Scholz confirmed to reporters that all G20 economies were on board for the pact, while US Treasury Secretary Janet Yellen said a handful of smaller countries still opposed to it, such as low-tax Ireland and Hungary, would be encouraged to sign up by October.

“We’ll be trying to do that, but I should emphasise it’s not essential that every country be on board,” she said.

“This agreement contains a kind of enforcement mechanism that can be used to make sure that countries that are holdouts are not able to undermine – to use tax havens that undermine the operation of this global agreement.”

The G20 members account for more than 80 percent of world gross domestic product, 75 percent of global trade and 60 percent of the population of the planet, including big-hitters the United States, Japan, Britain, France, Germany and India.

In addition to European Union holdouts Ireland, Estonia and Hungary, other countries that have not signed on include Kenya, Nigeria, Sri Lanka, Barbados and St Vincent and the Grenadines.

Among other sticking points, a fight in the US Congress over President Joe Biden’s planned tax increases on corporations and wealthy Americans could cause problems, as could a separate EU plan for a digital levy on tech companies.

US Treasury officials say the EU plan is not consistent with the wider global deal, even if the levy is largely aimed at European firms.

Italy’s Minister of Economy and Finance Daniele Franco leaves the press conference of the G20 High Level Independent Panel (HLIP) [Andreas Solaro/AFP]

Two-track recovery

Beyond the tax agreement, the G20 will address concerns that the rise of the fast-spreading Delta coronavirus variant, combined with unequal access to vaccines, pose risks to global economic recovery.

Citing improvements in the global outlook so far, the draft communique said: “However, the recovery is characterised by great divergences across and within countries and remains exposed to downside risks, in particular the spread of new variants of the COVID-19 virus and different paces of vaccination.”

A Reuters news agency tally of new COVID-19 infections shows them rising in 69 countries, with the daily rate pointing upwards since late June and now hitting 478,000.

“We all have to improve our vaccination performance everywhere around the world,” French Finance Minister Bruno Le Maire told reporters.

“We have very good economic forecasts for the G20 economies and the single hurdle on the way to a quick, solid economic rebound is the risk of having a new wave.”

IMF Managing Director Kristalina Georgieva said the world was facing “a worsening two-track recovery” partly driven by the differences in vaccine availability.

“It is a critical moment that calls for urgent action by the G20 and policymakers across the globe,” she said in an appeal made in the run-up to the meeting.

The communique, while stressing support for “equitable global sharing” of vaccines, did not propose concrete new measures, merely acknowledging a recommendation for $50bn in new vaccine financing by the IMF, World Bank, World Health Organization and World Trade Organization.

The IMF is also pushing G20 countries to decide on a clear path for allowing rich countries to contribute some $100bn worth of newly issued IMF reserves to poorer countries.

IMF First Deputy Managing Director Geoffrey Okamoto told Reuters his goal was to be able to present a viable option for channeling newly issued Special Drawing Rights to countries in need by the time a fresh $650bn allocation is completed at the end of August.

Source: Reuters

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