G20 finance ministers backed a historic pact to change the way multinational corporations are taxed on Saturday (July 10) in Venice, urging holdout countries to join. A total of 132 countries have already agreed to a framework for worldwide tax reform, which includes a 15% minimum corporate rate, that was reached earlier this month.
However, the support of the world’s 19 largest economies, as well as the European Union, will help it become a reality after years of discussions.
“We have reached a historic agreement on a more stable and equitable international tax architecture,” the ministers said in a joint statement released after two days of negotiations in Venice, sponsored by G20 President Italy.
“We support the fundamental elements of the two pillars on multinational corporation profit reallocation and an effective global minimum tax.”
READ: The G20 approves a tax crackdown and issues a warning about COVID-19 variations
Singapore was one of the countries that backed the agreement.
Finance Minister Lawrence Wong, who was among those present at the grouping’s first face-to-face meeting since February 2020, described the revisions as “the most substantial in tax policies in over a century.”
Mr. Wong stated that he addressed at the G20 meeting on the importance of recognizing meaningful economic activities and allowing large and small economies to compete on an equal basis.
“Tax systems should continue to foster innovation, growth, and jobs, in addition to raising revenue,” he said on Facebook early Sunday.
“There’s still more work to be done, as well as a few design factors to iron out. Singapore, like many other countries, hopes to have these design aspects finalized by the G20 meeting in October.” READ MORE: What Does the G7’s Global Tax Reform Plan Mean for Singapore? READ: ‘It’s still too early to assess the full impact of global corporation tax reform,’ says expert – Lawrence Wong, United States of America The momentum, according to Treasury Secretary Janet Yellen, must not be lost now. “The world is ready to put an end to the global race to the bottom on corporate taxation,” she said in a statement, adding that “the deal should now be finalized soon.”
On July 9, 2021, US Treasury Secretary Janet Yellen (center) arrives in Venice for a G20 summit of finance ministers and central bank governors. (AP/Luca Bruno file photo)
“There is no turning back,” French Finance Minister Bruno Le Maire said, adding that it was a once-in-a-generation opportunity for a “tax revolution.”
“Finally, major firms can no longer avoid their tax liability,” his German colleague, Olaf Scholz, tweeted.
The reforms are aimed at preventing countries from competing to give the lowest tax rates in order to attract investment, which has frequently resulted in multinational corporations paying exorbitant tax rates.
The final agreement is likely in the run-up to the G20 leaders’ conference in Rome in October, with the goal of implementing the reforms by 2023.
HOLD-OUTS UNDER PRESSURE
The United States, France, and Germany, for example, have pushed for a higher minimum tax rate.
However, certain countries, like as Ireland, which enticed Apple and Google to Dublin with low tax rates, are opposed to 15%.
The G20 ministers “encourage” countries to sign up in their final statement.
The European Union will not be able to implement the accord until Ireland and other EU holdouts Hungary and Estonia agree.
“Our work is not done,” EU Economic Affairs Commissioner Paolo Gentiloni said, while celebrating a “extraordinary accord.”
Oxfam, a non-governmental organization that studies multinational corporations’ tax affairs, has criticized the legislation for allowing rich countries to keep the majority of the additional tax money.
“Further effort needs to be done to guarantee a fairer, sustainable, and inclusive tax structure that results in meaningful revenue for poor nations,” said Indian Finance Minister Nirmala Sitharaman, who joined the Venice meetings remotely.
Commentary: The global minimum tax reflects the interests of wealthy countries, but it may not provide revenue for others. RULES THAT APPLY ALL OVER THE WORLD The achievements must not be overlooked, according to Italian Finance Minister Daniele Franco. “Having global norms for taxing multinationals, for taxing earnings of large corporations is a tremendous change, a major accomplishment,” he remarked. Although the minimum tax rate is estimated to affect fewer than 10,000 significant corporations, the OECD believes that a 15% effective rate would raise an additional US$150 billion in revenue per year. The bill is one of two so-called pillars of global tax reform that have been in the works for years and have received a boost from US Vice President Joe Biden. The other would allocate a portion of earnings made in a country’s territory to countries. Multinational corporations operate in a variety of nations, although they often pay taxes on profits exclusively in tax havens chosen for their low rates. The profit reform would initially apply to the top 100 or so corporations and is aimed at the most aggressive users of tax-avoidance jurisdictions, such as Google, Amazon, Facebook, and Apple, among others. According to British Finance Minister Rishi Sunak, the adjustments will ensure that “the appropriate corporations pay the correct tax in the right places.” COVID- Hundreds of demonstrators descended on Venice on Saturday, despite the fact that the Arsenal district of the lagoon city, where the meeting took place, was closed to the general public.
During a protest against the G20 Economy and Finance Ministers and Central Bank Governors conference in Venice, Italy, on Saturday, July 10, 2021, Italian police officers in riot gear struggle with demonstrators. (Luca Bruno/AP Photo)
“We don’t expect the actual, radical change that we need,” said Elena Carraro, a 20-year-old student who wants the G20 to pay more attention to climate change.
The G20, whose members account for around 85% of global income, discussed both the climate and the post-pandemic recovery.
Ministers warned that the global recovery was uneven and “vulnerable to downside risks, including the introduction of novel COVID-19 viral strains and varying vaccination rates.”
They approved a plan by the International Monetary Fund to use special drawing rights, or international reserve assets, to bolster aid to nations struggling to cope with the pandemic, saying it must be implemented “before the end of August.”/n
