G-20 backs tax deal, vows to clear hurdles

US Treasury Secretary Janet Yellen (centre) arrives at the Arsenale for the G-20 Finance Ministers and Central Bank Governors Meeting in Venice, Italy.
US Treasury Secretary Janet Yellen (centre) arrives at the Arsenale for the G-20 Finance Ministers and Central Bank Governors Meeting in Venice, Italy.PHOTO: EPA-EFE

VENICE (BLOOMBERG) - Top officials from the US, Germany and France said they are confident that a global tax deal endorsed at the Group of 20 (G-20) meeting in Italy has enough momentum to overcome political obstacles in Washington and within the European Union, in time for it to be finalised in October.

“There’s more work to be done, but I’m really hopeful that with the growing consensus, we’re on a path to a tax regime that will be fair for all of our citizens,” US Treasury Secretary Janet Yellen told reporters on the sidelines of the meeting in Venice on Saturday (July 10).

The landmark agreement aims to revamp rules that have allowed major companies to save billions by shifting profits to low-tax jurisdictions. 

A total of 132 countries this month backed the two-pillar accord at the Organisation for Economic Cooperation and Development (OECD) that seeks to address that situation with a global minimum rate, as well as making multinational companies pay more in places where they operate rather than where they are headquartered.

Dr Yellen was particularly confident that the US Congress would pass legislation needed to implement at least the part of the proposed deal that imposes a minimum tax rate.

“I’m very optimistic that the legislation will include what we need for the US to come into compliance with pillar 2,” she said.

German Finance Minister Olaf Scholz said he believes European holdouts Ireland, Hungary and Estonia would be brought on board.

“This is a big historic moment. The G-20 has now reached an agreement here for new rules on international taxation to be introduced,” he said.

French Finance Minister Bruno Le Maire said “there is no turning back” from the G-20 officials giving their stamp of approval.

The three finance chiefs, whose countries have for years haggled over the details of an agreement, hailed the political endorsement in Venice as killing off competition among countries that have sought to attract corporations with lower and lower taxes.

While Mr Scholz expressed optimism that Ireland, Hungary and Estonia would eventually back the accord, the EU could yet create other problems because of a plan to present a digital levy for the bloc in the coming weeks.

That has rankled Treasury officials, who point out that the OECD deal is supposed to eliminate taxes in several European countries on digital giants like Amazon.com.

The United States has insisted such levies are abolished before a deal goes to Congress, and that no new ones be adopted. Dr Yellen is due to meet her European counterparts in Brussels on Monday to discuss the matter.

“We can fix the issue, we can alleviate the difficulties,” Mr Le Maire said. 

On the minimum tax, the French minister said he had agreed with Dr Yellen and Mr Scholz in Venice to push for a rate higher than 15 per cent.

Singapore’s Finance Minister Lawrence Wong, who was attending the meetings in Venice, said in a Facebook post that Singapore, like many others, looked forward to finalising the design elements by the next G-20 meeting in October.

"At the G-20 discussion today, I spoke about the need to recognise substantive economic activities in the design parameters and the importance of ensuring consistent and timely implementation to allow big and small economies to compete on an equal footing," he said.

"Tax systems, besides raising revenue, should continue to encourage innovation, growth and jobs," he added.