The ambitious plan by the Biden administration to overhaul the global tax system is about to be put to the test.
Treasury Secretary Janet Yellen will attend a meeting of the Group of Seven finance ministers in London on Friday and Saturday in the hopes of gaining support from many of the world’s leading economies — an important step in the administration’s efforts to rewrite international tax rules and discourage American companies from booking profits abroad.
According to a Reuters report citing a US Treasury official, G7 finance ministers are expected to support the US plan at the summit. When G7 leaders, including President Joe Biden, meet in the United Kingdom next week, Washington’s proposal is expected to receive full support, according to the news agency.
The US Treasury proposed a global minimum tax of at least 15% last month, in an attempt to address an unwieldy international system riddled with loopholes. Establishing a minimum rate could deter businesses from shifting their profits to countries with lower tax rates.
“With the global corporate minimum tax functionally set at zero today, there has been a race to the bottom on corporate taxes, undermining the United States’ and other countries’ ability to raise the revenue needed to make critical investments,” the US Treasury said in a statement on May 20.
This week, Yellen is likely to find willing negotiating partners. In a letter to the Guardian newspaper on Friday, the finance ministers of France, Germany, Italy, and Spain said the US proposal was a “promising start.”
“We therefore commit to defining a common position on a new international tax system at the G7 finance ministers meeting in London today. We are confident it will create the momentum needed to reach a global agreement at the G20 in Venice in July. It is within our reach. Let’s make sure it happens,” they wrote.
While some of Europe’s major economies have expressed support for the plan, the United Kingdom has remained a skeptic. On Thursday, British finance minister Rishi Sunak told Reuters that the US proposal could work, but that more work is needed to iron out the details.
The G7’s support could help speed up parallel tax negotiations between about 140 countries led by the Organization for Economic Cooperation and Development.
One country that has expressed significant reservations about the Biden proposal is Ireland, which has successfully recruited global companies, including big US tech firms, by offering a corporate tax rate of only 12.5 percent. Biden’s plan to fund at least $1.4 billion in new infrastructure spending depends in part on his ability to gain support for a global minimum tax on corporations that raises Treasury payments.