Members of the G7 reached a deal to create a minimum tax on multinational companies though many roadblocks remain before it can be implemented, The Wall Street Journal reports.
Treasury Secretary Janet Yellen, who has championed the policy since joining President Joe Biden’s administration, reached a deal with the other finance members of the G7 nations, including Canada, France, Germany, Italy, Japan, and the United Kingdom over the weekend.
Under the deal, nations would be able to tax profits of multinational companies based there even if they offshore some of their operations to lower-tax nations.
The finance ministers also agreed on a framework that would give nations the right to impose a 20% tax on global companies that have profit margins of over 10% and divide the proceeds.
Long road ahead:
Though the seven nations struck a deal, it would still have to be approved by their respective governments. The provision, which is intended to discourage companies from moving operations to lower-tax countries, could face opposition in the US Congress from Republicans. The Biden administration has pushed the plan while calling to raise the corporate tax rate in the US from 21% to 28%.
Other countries may be reluctant to move ahead with the deal if the legislation dies in Congress.
The proponents of the deal would also have to convince the rest of the world to follow suit, including at the G20 summit next month. The G20 is set to discuss the plan in early July.
But that still leaves a larger group of more than 130 nations, some of which could stand to lose a lot if they agree.
“We’ll have to convince the other great powers, especially the Asian ones. I am thinking in particular of China,” France’s finance minister, Bruno Le Maire, said over the weekend. “Let’s face it, it’s going to be a tough fight. I am optimistic that we will win it because the G-7 is giving us extremely powerful political momentum.”
Silver lining for tech companies?
Though the new framework would impose new taxes on global tech firms like Apple, Facebook, and Google, it would likely remove digital-services taxes that other nations have imposed on US-based companies.
The Computer & Communications Industry Association, a lobby group for Google and Facebook, praised the agreement but Matthew Schruers, the president of the group, expressed concern that some countries may keep their digital-services taxes even if an agreement is reached.
“The work is not finished until the digital taxes that unfairly target U.S. businesses have been removed,” he said.