G20 countries prepare to back global tax reform on multinationals

G20 finance ministers meeting in Venice are set to give the green light to a deal on global tax reform to ensure that multinational companies are taxed more fairly on their profits.

Christine Lagarde, the head of the International Monetary Fund, attended a G20 finance ministers meeting in Venice where they thrashed out a deal on global tax reform. Andreas Solaro AFP

Ministers and central bankers for the world’s 19 biggest economies plus the EU are expected to reach agreement on taxing global companies a minimum of 15 percent on their profits. 

"Today, we see that all the countries that are coming together here will support this international process in finding a way to a minimum taxation," German Finance Minister Olaf Scholz said on Saturday on the sidelines of the meeting in Venice.

On 1 July, 131 countries reached agreement in principle on the idea when they signed a reform crafted at the OECD.

EU countries Estonia, Hungary and Ireland are among the nations still resisting.

US Treasury Secretary, Janet Yellen, said that Washington would seek to address the concerns from some reluctant countries. "It's not essential that every country be on board," she added.

"This agreement contains a kind of enforcement mechanism that can be used to make sure that countries that are holdouts are not able to undermine — to use tax havens that undermine the operation of this global agreement," she said.

Historic deal reached

G20 agreed on global minimum tax and taxing international cooperations in their markets. The end of tax havens might be near. #G20 finance ministers are "building bridges" in #Venice. That is the name of this piece of art at the meeting venue "Arsenale". pic.twitter.com/hRF7IZRyFd

— Bernd Thomas Riegert (@RiegertBernd) July 10, 2021

Some other countries, including major sales-markets for multinationals such as the US and France, are pushing for a higher minimum rate than 15 per cent.

The aim is to end tax havens and stop global companies benefiting as countries compete to offer low tax rates.

However, beyond the minimum rate agreed, countries would still be able to choose different rates of tax to attract businesses.

The 15 percent minimum rate would affect fewer than 10,000 multinational companies: those with an annual turnover of more than €750m.

Tax where profits made 

The minimum rate is one of two pillars of global tax reform.

The other is a plan to tax companies where they make their profits rather than simply where they are headquartered.

Digital giants such as Google, Amazon, Facebook and Apple, that have made huge profits especially during the pandemic, pay most of their taxes in the countries where they are headquartered.

• France 'will fight' to ensure Amazon is included in global digital tax

• France looks to summer deal with US tech giants over digital tax

The EU also plans to announce its own digital tax later this month to help finance its 750 billion euro post-virus recovery plan, although Washington claims such taxes are a form of discrimination against US technology giants.

France has a law which imposes a 3 percent revenue tax on digital companies with global revenues above 750 million euros and above 25 million euros in France. 

'Deepening divergence'

The G20 ministers are also expected to support an International Monetary Fund initiative to increase aid to the most vulnerable countries through the allocation of $650 billion of special drawing rights that would provide poorer countries with extra liquidity.

IMF chief, Kristalina Georgieva, warned this week of a deepening divergence between rich and poor nations. She said the pandemic and resulting economic damage had dealt a devastating double-blow to the poorest nations.

Final agreement on the minimum rate is not expected until the run-up to the G20 leaders’ summit in Rome in October.