A draft communique showed that the finance chiefs of the G20 club of large economies have backed a landmark move to stop multinationals shifting profits into low-tax havens and win back hundreds of billions of dollars in lost revenues. The agreement at talks in the Italian city of Venice is set to be finalized soon. And the caps eight years of wrangling over the issue. The aim is for country leaders to give it a final blessing at an October summit in Rome.
The pact to establish a minimum global corporate tax rate of at least 15% is an attempt to squeeze more money out of tech giants. Momentum for a deal accelerated this year with the strong backing of the Biden administration in the United States and many public treasuries around the world stretched by the massive fiscal support needed to shield pandemic-ravaged economies. Geoffrey Okamoto, First Deputy Managing Director of the International Monetary Fund, called it a “net win for the world”.
The new tax rules should be translated into binding legislation worldwide before the end of 2023. However, a fight in the U.S. Congress over President Joe Biden’s proposed tax increases on corporations. Equally, there could be difficulties because European Union member states Ireland, Estonia and Hungary are among the countries that have not yet signed up. The meeting of G20 finance ministers and central bankers in Venice is their first face-to-face encounter since the start of the pandemic. The G20 members account for more than 80% of world gross domestic product, 75% of global trade and 60% of the population of the planet.
Concerns have been rising recently that ultra-loose monetary policy in many countries following the pandemic could unleash a surge in inflation. The IMF said that its executive board had backed a $650 billion allocation of IMF Special Drawing Rights. Climate change policy will also feature at the Venice talks. Speaking at a climate tax forum there before the G20 meeting, U.S. Treasury Secretary Janet Yellen called for better international coordination. This is to avoid trade frictions.
Yellen said that recognizing the different paths countries are taking to address climate change could help avoid policy measures to address carbon leakage that inadvertently create new international risks and spillovers.