US treasury secretary Janet Yellen. Picture: GREG NASH/REUTERS
US treasury secretary Janet Yellen. Picture: GREG NASH/REUTERS

Top officials from the US, Germany and France each expressed confidence that a global tax deal endorsed at the Group of 20 meeting in Venice has enough momentum to overcome political obstacles in Washington and within the EU 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.

Yellen was particularly confident that the US Congress would pass legislation needed to implement at least part of the proposed deal.

“I’m very optimistic that the legislation will include what we need for the US to come into compliance with pillar 2,” Yellen said, referring to the minimum tax rate portion of the plan.

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.

No Turning Back

A total of 132 countries and jurisdictions last week backed a two-part agreement aimed at making multinational companies pay more tax in places where they operate and set a minimum corporate rate.

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

“It will be implemented and we will have built this international taxation system for the 21st century,” Le Maire said.

Yellen and Scholz hailed the deal as killing off a competition among countries seeking to attract corporations with lower and lower taxes, depriving governments of needed tax revenue.

“This is a kind of global race to the bottom that’s been occurring and a race that nobody has won,” Yellen said. “It’s deprived all of us of the resources we need to invest in our people, our workforce, our infrastructure and it’s wonderful to see that it can now come to an end.”

Congress Hurdle

Getting that finalised, however, will require support from Congress, where many Republican lawmakers and some Democrats have expressed serious reservations about both so-called pillars of the deal.

Yellen said she has engaged in talks with the Democratic leaders of key congressional committees on the Biden administration’s tax proposals. These would cover not only the international agreement but also measures needed to pay for the new president’s ambitious plans to invest in infrastructure and other priorities over the next decade.

The Treasury chief said changes necessary to comply with the minimum corporate taxes could be passed alongside other Biden proposals through a process known as budget reconciliation that won’t require Republican support in the closely divided legislature.

“Congress is negotiating a budget resolution that we expect to result in a reconciliation bill,” she said.

Following Yellen’s remarks, a Treasury official said the administration sees approval for pillar 1, which proposes a redistribution of corporate tax rights on multinational firms, as moving forward on a different schedule.

That part of the deal won’t be approved until next year at the earliest, said the official, who commented on condition of anonymity because they weren’t authorised to speak publicly.

2023 Target

“We aim to have a full implementation of this international taxation system no later than 2023,” Le Maire said. “We should not lose the impetus.”

Scholz and other European leaders face their own internal fights to get the agreement adopted across the 27-member bloc.

Ireland, Hungary and Estonia have so far refused to sign up to the minimum tax, creating a potential roadblock because of the need for unanimity on tax issues within the EU.

The EU commission is working on a directive to implement the global tax deal and Scholz has expressed optimism the three countries will eventually back the deal. They are opposed to an effective minimum tax of 15%.

Besides possible implementation challenges in the US and Europe, there are also issues that remain to be settled between advanced and developing countries, and high and low tax jurisdictions.

Higher Rate

On the minimum tax, Le Maire said he had agreed with Yellen and Scholz in Venice to push for a rate higher than 15%.

“We know the resistance, the opposition, but it’s worth trying to have the most ambitious level possible,” Le Maire said.

There also remain technical and political hurdles connected to sharing out of rights to tax international firms. According to the OECD deal, between 20% and 30% of profits over 10% of revenues would be allocated for tax in countries where multinationals generate revenues.

“For the time being we have consensus for 20%. I think that best solution would be a level of reallocation of 25% to meet the concerns of some developing countries,” Le Maire said.

Yellen and Scholz also addressed the issue of tax levies imposed in several European countries on digital giants like Amazon.com Inc and Alphabet Inc’s Google. The new agreement calls for the elimination of such taxes. The US has insisted that should happen before a deal goes to Congress, and that no new ones be adopted.

Scholz on Saturday said EU countries would stick by the new deal with Yellen signalling her approval.

Yellen said she’s “hopeful” the global pact “will enable us to get rid of existing digital levies that the United States regards as discriminatory against US firms.”

Bloomberg News. More stories like this are available on bloomberg.com

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