Global tax talks rush to resolve roadblocks as time is running out: report

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The 140 countries trying to conclude years of negotiations to overhaul global tax rules for an increasingly digital economy are rushing to resolve key details against a ticking clock.

With just over a week before the Oct. 8 meeting of all concerned governments, negotiators are still grappling with the parameters of establishing a global minimum corporate tax and sharing the spoils of corporate levies. Tech giants like Facebook Inc. and Alphabet Inc.’s Google, according to people familiar with the matter.

They are also trying to determine how the global deal will coordinate countries to end new unilateral digital taxes and reverse existing measures – a burning issue for governments seeking to protect revenues, and for the United States, which is considering these levies as discriminatory against its companies.

During talks, there is uncertainty as to whether the United States could actually implement any kind of agreement after a senior Republican senator, Patrick Toomey, said this week that Congress would likely block ratification.

Taken together, the hurdles threaten the goal of the Biden administration and the Group of 20 advanced economies to end a downward income erosion race by offering ever lower taxes to attract business investment. Changes to global levies are a key part of Biden’s tax proposals to help pay billions of dollars in social spending.

And more broadly, the Organization for Economic Co-operation and Development, which is trying to negotiate a deal, has warned that failure will result in a cocktail of unilateral digital levies and trade and tax disputes that could cut production by more than 1%. global economy every year.

Ahead of the Oct. 8 meeting of all concerned countries, the Group of Seven finance ministers, who shaped the discussions at key times, met on a conference call on Wednesday. The UK, which currently chairs the group, said there was “a common understanding” on some important issues and a commitment to implementation. But countries paused before specifying positions on the headlines that will shape the deal.

“The conversation has been constructive and we have made a lot of progress on important points,” French Finance Minister Bruno Le Maire said in a statement provided to Bloomberg News. “Let’s not pass up the opportunity for a major deal next week. We can do it.

Two pillars

The discussions are divided into two distinct parts. The first, known as Pillar One, seeks to reallocate a portion of tax revenue from where multinationals make profits to where they make sales, while Pillar Two seeks to create a tax rate. global minimum corporate tax.

After years of slow progress amid trade battles and inertia during Donald Trump’s presidency, the Biden administration’s proposals helped countries reach a preliminary agreement on the two pillars in July.

But the statement from the Inclusive Framework – the 140 countries involved in the talks – left some key details to be decided before the G-20 signed at a leaders’ summit in Rome in late October.

On the first pillar, if it is agreed that some profits of the largest multinationals should be reallocated, the exact amount remains in question, according to people close to the talks.

The July press release set a range of 20-30% of profits above a 10% margin to be reallocated. Some developing countries, including the Group of 24, which includes Brazil, India and Nigeria, called for this number to be no less than 30%. France proposed a 25% compromise.

The question of how and when national digital taxes will be removed as countries begin to collect new revenues under the new rules, and when governments must agree to stop introducing new unilateral measures, comes down to this. quarrel.

Reallocated profits

Countries also need to determine where the reallocated benefits will come from – and therefore who is most at risk of losing.

The rules could derive relatively more revenue from countries like the United States or from countries like Ireland and Singapore, which serve as the headquarters for the global operations of many multinationals outside of the United States.

The answer to this question will help determine how the deal affects US tax revenues and whether the deal ultimately gains support from the “investment hub” countries where companies currently store their profits. The Biden administration has previously said it expects Pillar 1 to be roughly revenue neutral for the United States

The countries are also aiming to reach a final agreement on the precise minimum tax rate under the second pillar by October 8, people familiar with the matter said. The July agreement called for “at least 15%”.

Ireland, which has not adhered to the statement, fears the final figure will be well above its corporate tax rate of 12.5%. Irish Finance Minister Paschal Donohoe said he reiterated concerns about the language “at least” in the G-7 on Wednesday.

Even so, ministers are “more in agreement” than the last time they met, Japanese Finance Minister Taro Aso told reporters following the G-7 call.

‘Demand more’

“But those on the tax collection side are asking for more, so it is difficult to come to an easy agreement on the minimum corporate tax rate,” Aso said.

Beyond determining the rate, there are still differences on what to exclude from the minimum tax rule. Benjamin Angel, director of direct taxation at the European Commission, said on Wednesday that around 90% of the ongoing discussions on the second pillar relate to exclusions.

In the coming months, the OECD will work on model rules to help countries adopt the second pillar, as well as a multilateral convention to implement the first pillar, the people said.

This is where the whole initiative could later run into problems in the United States.

For the first pillar to finally take effect, Toomey said in a hearing Tuesday that there was “no way around” the requirement to ratify the treaty with a two-thirds vote in the Senate that would likely fail. .

A Biden administration official took issue with Toomey’s claim that a formal treaty would be necessary. Congress has in the past used ordinary law to override existing tax treaties, said the official, who requested anonymity because he was not authorized to speak publicly on the issue.


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