The finance chiefs of the Group of 20 leading economies are expected on Saturday to endorse a review of the rules for taxing international companies, a historic achievement of global cooperation after years of tensions.
G-20 members have rarely been able to agree on such ambitious changes in the last decade of disputes over trade, investment and jobs, although they have worked together to offset the economic impact of the Covid-19 pandemic. The tax deal, negotiated earlier this month by 130 countries, raised hopes that major economies can find common approaches to tackling other global problems such as climate change and trade.
The tax review innovates in two ways. It is the first time that governments have set a floor for the tax rate faced by large international companies. The G-20 governments have also overturned a long-standing principle that profits are taxed where companies have a physical presence – known as a permanent establishment – rather than where their sales are made.
“These last six weeks have been really important for economic diplomacy,” said US Treasury Secretary Janet Yellen. “We are seeing a rebirth of multilateralism on a range of issues.”
The G-20 finance chiefs arrived in Venice having already agreed on the contours of the tax reform, a goal that seemed unlikely at the beginning of the year. Yellen played an important role in pushing the negotiations forward, coming up with new proposals that turned out to be acceptable to other G-20 members.
The changes agreed by the G-20 aim to generate more revenue for governments at a time when confronting the covid-19 pandemic has increased the debts of many countries. For some tax experts, the reform is critical because it paves the way for further increases in tax rates and a greater transfer of revenue to the countries in which consumers are based.
Source: Dow Jones
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