The finance ministers of the twenty largest economies in the world (G20) agreed on a global tax reform in Venice on Saturday. 131 states, including the USA, have decided to end the self-damaging competition for the lowest corporate taxes that has been fueled over and over again for decades and have basically agreed on a minimum tax, said US Treasury Secretary Janet Yellen in a joint appearance with Federal Treasury Secretary Olaf Scholz (SPD) in the city on the Mediterranean. “That is something that is good for all of us.” The G20 met there on Friday and Saturday for regular talks.
On Saturday they passed a general agreement according to which at least 15 percent tax on corporate profits should be paid worldwide from 2023. In addition, the taxation rights for particularly profitable companies such as the US tech corporations are to be distributed more fairly – in particular, emerging countries such as China or India are to receive a larger piece of the global tax pie.
“Tax dumping race that nobody won”
The global tax reform – the first in around 100 years – marks a turnaround in international financial policy. In the best case scenario, in many countries it means that government budgets will have more money at their disposal. It was wrong to keep cutting corporate taxes just to see how other states reacted and how far they would cut their taxes, Yellen said. “It was a tax dumping race that nobody won.” In future, the minimum tax will prevent this race, and money will be earned and invested in jobs, training and infrastructure. There is still a lot of work to be done, Yellen said, but it is “wonderful to see this race now come to an end with consensus”.
The former head of the US Federal Reserve expressly thanked Scholz for the cooperation. The German finance minister had been in favor of global tax reform since 2018; his officials had pushed the project forward in international negotiations. After the hard work of the past weeks, it is important not to rest now after the consensus in Venice, but “to finish things off” by the next G20 meeting in October, said Scholz. The aim is to implement the reform in 2023. “It’s only a short period of time, but we can do it.”
Scholz described the global minimum tax as “a great step forward that will make the world fairer”. Germany will also benefit: if German corporations abroad, for example, only pay two percent tax on their profits there, the difference to the new minimum tax in Germany will in future be levied.
From the basic agreement to the national implementation, however, a few hurdles still have to be overcome. Both in Europe and the USA. Yellen needs the support of Congress to implement the deal – where there are major reservations among Republicans. At the same time, Hungary, Estonia and Ireland are blocking the minimum tax. Another problem is that the USA insists that some European countries, including France, abolish their nationally introduced digital taxes.
“We are still in the process of finding out what your concerns are,” said Yellen. It is not absolutely necessary that all countries have to participate; the vast majority are involved in the tax reform and there are also rules that ensure that tax havens and low-tax countries cannot undermine the agreement. The US Treasury Secretary said she was “optimistic” about getting national laws through the Washington legislature.
Scholz was optimistic that in the end all EU states could agree that this has always been the case in the past. But that is not certain. Scholz will interrupt his vacation, which he will start on the Sunday after the G-20 meeting in Venice, in order to travel to Brussels next Tuesday for an extended meeting of euro finance ministers.
Yellen will also travel to Brussels from Venice. First of all, both want to speak to the states that still have concerns. But there is one bigger problem, one of which has to do with trust, and that is between the US and Europe.
Still reservations in the US
The EU Commission wants to make a legislative proposal for a European digital levy soon. In the US, this is fueling reservations about the global tax reform agreements. The concern is that US tech companies could be taxed multiple times or differently in each country around the world. EU Economic Commissioner Paolo Gentiloni has already emphasized that the European digital tax will not be directed against American corporations – it is not comparable to a digital tax. The levy is one of the own funds that are to be introduced to finance the EU Corona reconstruction fund – which in turn was largely designed by Scholz.
The EU states must therefore find a way to introduce the levy on the one hand in order to finance the fund. And on the other hand, not to jeopardize the US approval of the global tax reform.
Scholz never made a secret of the fact that he preferred a global solution. This initially led to great tensions, especially with his French counterpart Bruno Le Maire. France had introduced a digital tax nationally. This should actually be canceled again because of the new rules of the global tax reform. However, a new president will be elected in France in 2022. That should make it difficult to abolish the tax that mainly US corporations pay.