WASHINGTON – President Joe Biden and leaders of the G-7 group of nations will publicly approve a global minimum corporate tax of at least 15% on Friday, part of a larger deal to update tax laws international organizations for a global digital economy.
Executives will also announce a plan to replace taxes on digital services, which targeted America’s biggest tech companies, with a new tax plan tied to where multinationals actually do business, rather than where they do business. have their head office.
For the Biden administration, the Global Minimum Tax plan represents a concrete step towards its goal of creating what it calls a “foreign policy for the middle class.”
This strategy aims to ensure that globalization and trade benefit American workers, not just billionaires and multinationals.
For the rest of the world, the GMT aims to end the arms race to lower taxes that has led some countries to lower their corporate taxes much lower than others, in order to attract multinational companies.
If widely adopted, GMT would effectively end the practice of global companies seeking low-tax jurisdictions like Ireland and the British Virgin Islands to relocate their headquarters there, even if their customers, their operations and their leaders are located elsewhere.
The second major deal that Biden and G-7 leaders will announce on Friday is a plan to expand the International Monetary Fund’s offer of “special drawing rights,” an IMF internal currency, which are available to countries with weakened capital. returned.
This action aims to extend international development funding to poor countries and help them buy Covid vaccines and recover from the effects of the pandemic faster, according to a White House fact sheet.
The White House also said G-7 leaders would agree to “continue to provide political support to the global economy for as long as necessary to create a strong, balanced and inclusive economic recovery.”
But it is the GMT plan that has the greatest potential to impact business results and influence investor decisions.
The G-7 tax deal “will serve as a stepping stone to secure a broader G-20 deal,” said a senior administration official, who spoke with background reporters to discuss the issues. ongoing talks.
A joint statement by Biden and British Prime Minister Boris Johnson, released Thursday, offers a glimpse of what to expect from the global tax deal between G-7 partner countries.
“We are committed to finding a fair solution on the allocation of taxing rights, with market countries being assigned taxing rights on at least 20% of profits exceeding a 10% margin for the most multinational companies. large and most profitable, ”the statement said.
“We are also committed to applying an overall minimum tax of at least 15% country by country.”
As part of this agreement, “we will provide for (…) the elimination of all taxes on digital services and other similar measures relevant to all businesses.”
The removal of taxes on digital services, a patchwork of country-by-country taxes that specifically target America’s biggest tech companies, is a real victory for the United States.
Analysts say deletion of these taxes – and the end of the looming threat of new DSTs – would add a level of certainty to the international tax system that would ultimately benefit big tech companies in the long run, even if a new global minimum tax increased costs in the long run. term. term.
Once G-7 leaders adopt the GMT proposal, the next step will be to win the support of the G-20 countries, a diverse group of economies that includes China, India, Brazil and the United States. Russia.
G-20 finance ministers and central bank governors are due to meet in Venice, Italy, in July. Both the IMF’s financing proposal and the international fiscal plan should be high on the agenda.
It is not clear at this point whether the GMT plan will win the support of the 19 member countries and the European Union.
Details of the plan have yet to be worked out, and some G-20 countries are keeping corporate tax rates relatively low in an attempt to attract businesses.
Much of the preparatory work for the adoption of a GMT has already been thrown out by the Organization for Economic Co-operation and Development, or OECD, which published a plan last fall describing the two-pillar approach to international taxation.
the OECD Inclusive Framework on Base Erosion and Profit Shifting, known as BEPS, is the product of negotiations with 137 member countries and jurisdictions.
One of the pillars is the plan for countries to collect taxes from multinational corporations based on that company’s share of profits coming from consumers in a particular country.
The second pillar is the global minimum corporate tax, a fixed rate of at least 15% that would apply even when tax rates in a given country are lower than that.