G7 finance ministers meet in London to barter a worldwide tax deal

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LONDON: Finance Ministers of the G7 Group of Rich Nations meet in London on Friday for two-day talks aimed at moving closer to a global deal to collect more taxes from Google, Facebook and Amazon.

The meeting, chaired by UK Treasury Secretary Rishi Sunak, marks the first time ministers have met in person since the coronavirus pandemic began.

Rich nations have struggled for years to agree on a way to collect more taxes from large multinationals, which often make profits in jurisdictions where they pay little or no tax.

U.S. President Joe Biden’s willingness to hike taxes on large corporations now creates more opportunities for international consensus than under his predecessor Donald Trump, and the need to fix COVID-hit public finances makes them more urgent.

“I believe we can make significant strides in addressing some of the world’s most pressing economic challenges,” Sunak told reporters on Friday just before the meeting began.

Sunak emphasized the importance of having his ministerial colleagues from the United States, Japan, Germany, France, Italy and Canada meet in person at Lancaster House, an ornate 19th-century mansion almost next to Buckingham Palace.

“You have to sit at a table, speak frankly and honestly about things,” Sunak said in an interview with Reuters this week.

Due to COVID restrictions, ministerial delegations have been cut and there are few traveling journalists. The seating plans were redesigned with the help of public health officials, and Sunak greeted the leaders by poking his elbows rather than shaking hands.

The bigger challenge, however, remains to reach an agreement on tax reform that could then be presented to a wider group of countries, the G20, at a Venice summit in July.

In a joint letter on Friday, the finance ministers of Germany, France and Italy wrote that they would “undertake to define a common position on a new international tax system at the G7 finance ministers’ meeting in London”.

“We are confident that this will create the momentum necessary for a global agreement,” they added. Spain also signed the letter.

However, Japanese Finance Minister Taro Aso said Monday he did not expect an agreement on a certain minimum tax rate this week.

The U.S. Treasury Department expects a broader deal when Biden and other heads of government meet June 11-13 at a remote beach resort in south-west England.

MINIMUM RATE 15 percent

The United States has proposed a minimum worldwide tax rate of at least 15 percent. If a company were to pay tax anywhere with a lower tax rate, it would likely have to pay surcharge.

Biden had planned to raise the domestic corporate tax rate in the US to up to 28 percent. But on Thursday he proposed a 15 percent tax floor to help Republicans with new spending measures.

But equally important for the UK and many other countries is that companies pay more tax where they do business – not just where they make profits or move their headquarters.

The United States wants an end to the taxes on digital services imposed by the UK, France and Italy, which it sees as unfair attacks on US tech giants for tax practices that are also followed by European companies.

British, Italian, and Spanish fashion and luxury goods exports to the United States will join the new 25 percent tariffs later this year if there are no compromises.

The United States has proposed that the new global minimum tax should only be imposed on the world’s 100 largest and most profitable companies.

The UK, Germany and France are open to this approach but want to make sure companies like Amazon – which has lower profit margins than other tech companies – don’t escape the net.

“All and without exception” must fall under the new rules, Federal Finance Minister Olaf Scholz told Reuters.

Daniel Bunn, an expert on global taxation at the Washington Tax Foundation think tank, said this will likely lead to more complex regulations.

“A lot of these rules, I think, will be political rather than principle-based,” he said.

(Additional reporting by William Schomberg and Leigh Thomas; editing by Chizu Nomiyama)