UK Chancellor of the Exchequer Rishi Sunak (R) 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
The Treasury Ministers of the Group of Seven may congratulate themselves on their deal to agree to a minimum global tax rate of 15%, but they are already criticized that it does not go far enough and that it will take a lot more time, coordination and collaboration, conclude.
The G7 ministers hailed the deal, signed in principle last weekend, as a milestone in global corporate tax cooperation after years of disagreement on this matter, particularly over the taxation of large multinational corporations, especially tech giants.
As it stands, the deal only affects G7 members – Canada, France, Germany, Italy, Japan, UK, US and EU – and is facing much deeper and likely protracted negotiations.
UK Treasury Secretary Rishi Sunak, who invited his G-7 ministers to attend talks in London, said on Saturday that ministers had “reached a historic agreement to reform the global tax system, to make it fit for the global digital age – and most importantly, to make sure it’s fair, so that the right companies pay the right taxes in the right places. “
US Treasury Secretary Janet Yellen said a global floor would “end the race to the bottom in corporate taxation.”
The deal will be discussed further at a Group of 20 meeting next month and comes just days before a meeting of G7 heads of state and government that begins Friday.
While finance ministers, who lead the world’s most advanced economies, may have praised the deal, many experts are not as impressed, saying that the 15% minimum tax rate is not ambitious enough and difficult to implement.
The beginning of a long journey
George Dibb, director of the Center for Economic Justice at the London Institute for Public Policy Research, told CNBC, “There are big questions about how much we set this minimum tax,” but said it was still “a big one Step forward ”. this global consensus. “
“We’d like to see something a lot closer to 25%. The Biden government entered these negotiations with an opening offer of 21%, but I think the big argument in the G-7 on Friday and Saturday was over the wording, such as whether it was “15%” or “at least 15%” would say, and because we now have this formulation of “at least 15%”, the door is still open for negotiations, ”he told Squawk Box Europe.
“This is the beginning of a long journey. … The challenge here with the international taxation of large multinationals is that it really is a collective action problem. You don’t have to move all countries, but most countries and larger economies at the same time. “.”
Italy’s Economics and Finance Minister Daniele Franco, France’s Economics and Finance Minister Bruno Le Maire, Canada’s Finance Minister Chrystia Freeland, Britain’s Finance Minister Rishi Sunak, IMF Managing Director Kristalina Georgieva, Germany’s Finance Minister Olaf Scholz, and 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 at Lancaster House, London, June 5, 2021.
HENRY NICHOLLS | AFP | Getty Images
Jim Reid, Global Head of Fundamental Credit Strategy and Thematic Research at Deutsche Bank, called the deal a “turning point” but said the outlook was unclear.
“The news from the weekend is not radical in itself, but it is likely a signal for the future,” he told CNBC’s Street Signs.
“I suspect we have hit rock bottom (in terms of) corporate tax, but it’s still unclear how much it can go up in a world where we’re still relatively globalized, and obviously we need to more countries on board for it to function fully. ” than just the G-7 deal, but it’s likely a turning point. “
He pointed out that the focus will now shift to a meeting of G-20 finance ministers in July to see “if we can get a broader agreement and … long-term talks between about 140 countries at the OECD” .
Organizations and charities that have long advocated higher global corporate tax rates have largely voiced the announcement. Gabriela Bucher, Executive Director of Oxfam International, said, among other things, that the deal did not go far enough.
“The time has come for some of the world’s most powerful economies to force multinational corporations, including tech and pharmaceutical giants, to pay their fair share of taxes,” said Bucher. “However, setting a global minimum tax rate of only 15 percent is far too low. It will do little to end the harmful race to the bottom in corporate taxes and curb the widespread use of tax havens.”
She added that it was “absurd for the G-7 to claim that they are” overtaking “a broken global tax system by setting a minimum global corporate tax rate similar to the soft rates levied by Ireland (which averages 12.5% ). , Switzerland (around 15%) and Singapore (around 17%).
“In a world ravaged by a pandemic, at a time of such dire need, the G-7 looked at corporate balance sheets that were bursting at the seams with inflated profits – and immediately looked the other way,” she said.
Years to graduate?
Gilles Moec, the group’s chief economist at AXA Investment Managers, stated on Monday that reaching an agreement would require much deeper coordination, negotiation and time, and it could take years.
“The G7 agreement must be confirmed by the G20 in July and then negotiated even more broadly under the aegis of the OECD. The level – 15% while Biden opened at 21% – makes it potentially more digestible for the lows. “-Taxing countries like Ireland (its own tax rate is 12.5%) which would make it easier to reach a general agreement,” he said in a note.
“Still, these countries will likely consider that once the principle of a minimum tax is agreed, there is a high likelihood that the tax rate will be gradually increased (the communique is ‘at least 15%’), but it will take time and immense technical effort the actual changes are implemented. French Finance Minister Bruno le Maire spoke of “2 to 3 years” on Sunday, “he added.