Germany and France on Tuesday welcomed a promise by U.S. Treasury Secretary Janet Yellen to work on a global corporate minimum tax rate as a step towards making a landmark deal achievable, but low-tax Ireland voiced reservations.
Negotiators are racing to agree to a minimum corporate tax by midyear as part of efforts by more than 140 countries to update the rules for taxation of cross-border commerce for the first time in a generation.
The aim is to discourage multinationals from booking profits in low-tax countries regardless of where their income is earned.
Yellen confirmed she was working to agree with counterparts on a global floor on company taxes ahead of a G20 meeting this week. While she left open what rate that could be, the Biden administration wants a minimum tax on U.S. corporations of 21% no matter where they earn the income, up from 10.5% currently.
“I’m in high spirits that with this corporate taxation initiative, we’ll manage to put an end to the worldwide race to the bottom in taxation,” said German Finance Minister Olaf Scholz, a firm backer of the initiative.
He said any deal must include rules on how to tax cross-border business by digital tech giants, which is the second focus of international tax talks underway at the Organisation for Economic Cooperation and Development (OECD).
French Finance Minister Bruno Le Maire, who had clashed with former U.S. President Donald Trump’s administration over international taxation, said he welcomed Yellen’s pledge.
“A global agreement on international taxation is now within reach,” he said. “We must seize this historic opportunity.”
The proposed U.S. minimum is higher than that discussed so far at the OECD, which has been closer to 12.5% and happens to be the current Irish corporate tax rate.
It was unclear what progress G20 finance leaders may be able to make in tax discussions on Wednesday.
Communique language drafted earlier this week and seen by Reuters was inconclusive: “We will continue our cooperation for a globally fair, sustainable and modern international tax system,” G20 officials wrote, adding they remain committed to reaching consensus by mid-2021.
International Monetary Fund chief economist Gita Gopinath also said the IMF had long backed a global minimum tax, calling corporate tax avoidance “a big concern” for the global economy.