UK Chancellor of the Exchequer Rishi Sunak (right) welcomes US Treasury Secretary Janet Yellen to the G7 Finance Ministers’ meeting at Lancaster House in central London on June 4, 2021.
STEVE REIGATE | AFP | Getty Images
Group of Seven (G-7) finance ministers may welcome their agreement on a minimum 15% global corporate tax rate, but they are already facing criticism that this is wrong far enough and will take much longer, coordination and cooperation to conclude.
G-7 ministers hailed the agreement, agreed in principle, as an important step in global cooperation on corporate taxes after years of contention on the issue, in particular on the taxation of large multinationals, in especially the tech giants.
As it stands, the deal only covers G-7 members, Canada, France, Germany, Italy, Japan, UK, US and USA. EU, and faces much deeper and probably protracted negotiations.
UK Finance Minister Rishi Sunak, who hosted fellow G-7 ministers for talks in London, said on Saturday that ministers had “reached a historic agreement to reform the global tax system, to adapt it to the global digital age – and most importantly to make sure it’s right for the right companies to pay the right taxes in the right places. ”
US Treasury Secretary Janet Yellen said a global minimum rate would end “the race to the bottom on corporate taxation.”
The deal will be discussed in more detail at a meeting of the Group of Twenty (G-20) next month and comes just days before a meeting of G-7 leaders in the UK which begins on Friday.
While finance ministers at the head of the world’s most advanced economies may have welcomed the deal, many experts are not so impressed and say the 15% minimum tax rate is not enough ambitious and difficult to implement.
The start of a long road
George Dibb, director of the Center for Economic Justice at the London-based Institute for Public Policy Research (IPPR), told CNBC that “there are big questions around where we have set this minimum tax,” but said it was still “a big step forward in getting that global consensus.”
“We would like to see something much closer to 25%. The Biden administration entered these negotiations with an opening offer of 21% but I think the big fight at the G-7 on Friday and Saturday was on the wording. , whether he would say “15%” or “at least 15%” and because we now have that wording “at least 15%” the door is still open for negotiation, “he told Squawk Box Europe.
“This is the start of a long road … The challenge here regarding the international taxation of large multinational corporations is that it is really a problem of collective action. You don’t need all of them. countries but most countries and larger economies are moving at the same time. “
Italian Minister of Economy and Finance Daniele Franco, French Minister of Economy and Finance Bruno Le Maire, Canadian Minister of Finance Chrystia Freeland, British Chancellor of the Exchequer Rishi Sunak, Managing Director of IMF Kristalina Georgieva, German Finance Minister Olaf Scholz, US Treasury Secretary Janet Yellen take their seats as they prepare to pose for a family photo on the second day of the G7 Finance Ministers’ meeting in Lancaster House in London on June 5, 2021.
HENRY NICHOLLS | AFP | Getty Images
Jim Reid, global head of fundamental credit strategy and thematic research at Deutsche Bank, told CNBC the deal was a “turning point” but the outlook was unclear.
“The weekend news isn’t radical per se, but it’s probably a signal of things to come,” he told CNBC’s Street Signs.
“I suspect we’ve hit rock bottom on corporate tax, but it’s still unclear how much it can increase in a world where we’re still relatively globalized and obviously to make it work fully we we need more countries on board than just the G-7 agreement, but it’s probably a turning point. “
He noted that the focus would now be on a meeting of the G20 finance minister in July to see “whether we can get a broader deal and … long-term talks between around 140 OECD countries.”
Organizations and charities that have long campaigned for higher global corporate tax rates largely rejected the announcement on Saturday. Gabriela Bucher, Executive Director of Oxfam International, was among those who said the deal did not go far enough.
“It is high time that some of the world’s most powerful economies forced multinational corporations, including the tech and pharmaceutical giants, to pay their fair share of taxes,” Bucher said. “However, setting a global minimum corporate tax rate of just 15% is far too low. It will do little to end the race to level corporate taxes to the bottom. companies and limit the widespread use of tax havens. ”
She added that it was “absurd for the G-7 to claim that they are” overhauling “a failing global tax system by implementing a minimum overall corporate tax rate that is similar to the soft rates” practiced by Ireland (which charges 12.5%), Switzerland (around 15%) and Singapore (around 17%).
“In a world in the grip of a pandemic, at a time when the needs are so desperate, the G-7 examined the balance sheets of companies bursting with inflated profits and immediately looked away,” she said. .
Years to conclude?
Gilles Moëc, group chief economist at AXA Investment Managers, noted on Monday that much more coordination, negotiation and time was needed for a deal to be reached, and that could take several years.
“The G7 agreement will have to be confirmed at the G20 in July, then negotiated even more widely under the aegis of the OECD. The level – 15%, while Biden had opened with 21% – perhaps makes it more digestible at the low. -tax countries like Ireland (its own tax rate is 12.5%), which would facilitate a generalized agreement, ”he said in a note.
“These countries will probably consider that once the principle of a minimum tax is accepted, there is a high probability that the rate will gradually increase (the press release says” at least 15% “), but this will take time and technical work. immense. before real changes are implemented. The French Minister of Finance, Bruno le Maire, spoke on Sunday of “2 to 3 years”, he added.