The Biden administration’s ambitious plan to overhaul the global tax system is about to face a crucial test.
Treasury Secretary Janet Yellen heads to a meeting of Group of Seven finance ministers in London on Friday and Saturday looking to build support from many of the world’s top economies — an important step in the administration’s efforts to rewrite international tax rules and discourage American companies from booking earnings abroad.
G7 finance ministers are expected to back the US plan during the summit, according to a Reuters report citing a US Treasury official. Washington’s proposal will likely get a full endorsement when G7 leaders including President Joe Biden gather in the United Kingdom next week, the news agency reported.
Last month, the US Treasury proposed a global minimum tax of at least 15%, aiming to tackle an unwieldy international system rife with loopholes. Establishing a minimum rate could help discourage companies from shifting their profits to countries where they would pay less tax.
“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.
Yellen is likely to find willing negotiating partners this week. On Friday, the finance ministers of France, Germany, Italy and Spain wrote in a letter to the Guardian newspaper that 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 major European economies have indicated they are on board with the plan, the United Kingdom has been holding out. British finance minister Rishi Sunak told Reuters on Thursday that the US proposal could work but more still needs to be done to hammer out the details.
An endorsement from the G7 could help accelerate parallel tax negotiations among roughly 140 countries that are being led by the Organization for Economic Cooperation and Development.
Ireland, which has successfully recruited global companies including big US tech firms by offering a corporate tax rate of just 12.5%, is one country that has expressed significant reservations over the Biden proposal.
Biden’s plan to pay for at least $1.4 billion in new infrastructure spending hinges in large part on his ability to garner backing for a global minimum tax on corporations that increases payments to the Treasury.