“What we are seeing this year is an acceleration of the process,” Italian Finance Minister Daniele Franco told reporters on Wednesday after a meeting of finance ministers and central bank governors of the G20. He said the group was working to reach an agreement by July.
Earlier this week, French Finance Minister Bruno Le Maire said “an agreement on international taxation is now within reach”.
But experts question whether an agreement between the 140 or so countries participating in talks led by the Organization for Economic Co-operation and Development would be strong enough to force multinational companies to pay more taxes.
“I don’t know if they’ll be able to be successful,” said Michael Moore, professor of economics at the Elliott School of International Affairs at George Washington University. “It’s hard to do things like that.”
Yellen changes course
The talks gained new momentum after US Treasury Secretary Janet Yellen called for an overall minimum corporate tax rate in a speech earlier this week, citing the need to avoid a “race to the bottom” .
“Together, we can use the global minimum tax to ensure that the global economy thrives, based on a more level playing field in the taxation of multinational corporations,” Yellen told the Chicago Council on Global Affairs.
Establishing a minimum corporate tax to deter companies from filing taxes in countries with the lowest rates has been a key pillar of the OECD discussions.
Previously, the United States was lukewarm in advocating such a policy change. But Washington is strengthening its position as it tries to rally support for increasing corporate taxes in the country to help pay for the renewal of U.S. infrastructure.
Yet the administration must ensure that companies do not try to play with the system, by employing teams of lawyers who can find a way to protect profits in international tax havens. This is where a global agreement would come into play.
“This is part of a larger political campaign to push through the tax component of the upcoming spending law,” said Gary Hufbauer, a non-resident senior researcher at the Peterson Institute for International Economics.
Countries like France and Germany have welcomed the new American position.
“The support of the United States of America is a very decisive boost,” German Finance Minister Olaf Scholz said at a press conference on Tuesday.
Ireland, which has been successful in recruiting global companies, including large US tech companies by offering a corporate tax rate of just 12.5%, has been more subdued in its response, while expressing its commitment to continue discussions.
Can it work?
American support does not guarantee that the negotiations will run smoothly.
A minimum corporate tax rate of around 21% would be much higher than the 12.5% figure that has been discussed at the OECD level, said Elke Asen, policy analyst at the Center for Global Tax Policy of the Tax Foundation.
Countries also need to reach agreement on the other main pillar of tax negotiations, which aims to determine where companies report their profits. In a digital world, many countries argue that it makes sense for companies to be taxed where they generate income, rather than where they are based.
In the absence of a deal, countries like France and the UK have started to introduce their own digital sales taxes, sparking retaliation and the threat of tariffs from Washington.
Hufbauer is also skeptical that efforts to craft a minimum international corporate tax will lead to significant changes in the system. He predicts that there will be a “token” deal, but that in practice countries will continue to offer tax breaks and subsidies to support national champions and strengthen competitive industries, keeping their tax burden depressed.
“If there is a world minimum rate and Canada thinks it is not good for them, they will just invent a new credit or a new deduction,” he said.
But after the Trump-era discord, when America took a step back from the world stage, there is a real desire for countries to cooperate and show solidarity on thorny issues, according to Moore.
“The idea of at least superficial cooperation is very important because it has been so heavy for so long,” he said. “I think they’re going to be sunny for as long as possible.”
– Saskya Vandoorne contributed reporting.