Britain’s Chancellor of the Exchequer Rishi Sunak (R) welcomes US Treasury Secretary Janet Yellen to the G7 Finance Ministers Meeting at Lancaster House, central London on June 4, 2021.
STEVE REIGATE | AFP | Getty Images
Group of Seven finance ministers might be congratulating themselves on their deal to agree to a 15% minimum global corporate tax rate, but they’re already facing criticism that it doesn’t go far enough and will take much more time, coordination and cooperation to conclude.
G-7 ministers hailed the deal, agreed in principle this past weekend, as a milestone in global cooperation on corporation tax after years of discord over the matter, particularly over the taxation of large multinationals, especially tech giants.
As it stands, the agreement involves only the G-7 members — Canada, France, Germany, Italy, Japan, the U.K., U.S. and the EU — and faces much deeper and likely protracted negotiations.
U.K. Finance Minister Rishi Sunak, who hosted his fellow G-7 ministers for talks in London, said Saturday the ministers had “reached a historic agreement to reform the global tax system, to make it fit for the global digital age — and crucially to make sure that it’s fair so that the right companies pay the right tax in the right places.”
U.S. Treasury Secretary Janet Yellen said a global minimum rate would end “the race-to-the-bottom in corporate taxation.”
The agreement will be discussed further at a Group of 20 meeting next month and comes just days before a meeting of leaders of G-7 countries that begins on Friday.
While the finance ministers leading the world’s most advanced economies might have lauded the deal, many experts are not so impressed and say the 15% minimum tax rate is not ambitious enough, and tricky to implement.
The beginning of a long road
George Dibb, head of the Centre for Economic Justice at the London-based Institute for Public Policy Research, told CNBC “there are big questions around the level that we set this minimum tax at” but said it was still “a major step forward getting this global consensus.”
“We would like to see something a lot closer to 25%. The Biden administration came into these negotiations with an opening offer of 21%, but I think the big fight at the G-7 over Friday and Saturday was over the wording, about whether it would say ‘15%’ or ‘at least 15%,’ and because we have that wording now of ‘at least 15%’ the door is still open for negotiation,” he told “Squawk Box Europe.”
“This is the beginning of a long road. … The challenge here on international taxation of large multinational companies is that it really is a collective action problem. You need not all countries but most countries and larger economies to move at the same time.”
Italy’s Economy and Finance Minister Daniele Franco, France’s Economy and Finance Minister Bruno Le Maire, Canada’s Finance Minister Chrystia Freeland, Britain’s Chancellor of the Exchequer Rishi Sunak, Managing Director of the IMF Kristalina Georgieva, Germany’s Finance Minister Olaf Scholz, US Treasury Secretary Janet Yellen take their places as they prepare to pose for a family photo on the second day of the G7 Finance Ministers Meeting, at Lancaster House in London on June 5, 2021.
HENRY NICHOLLS | AFP | Getty Images
Jim Reid, global head of Fundamental Credit Strategy and Thematic Research at Deutsche Bank, called the agreement a “turning point” but said the outlook was unclear.
“The news over the weekend is not radical in itself, but it probably is a signal of things to come,” he told CNBC’s “Street Signs.”
“I suspect we have hit the bottom in (terms of) corporation tax, but it’s still unclear how much it can move upwards in a world where we’re still relatively globalized, and obviously to make it fully work we need more countries on board than just the G-7 agreement, but it’s probably a turning point.”
He noted that the focus would now shift to a meeting of G-20 finance minister in July to see “if we can get wider agreement and … long-running talks between about 140 countries at the OECD.”
Organizations and charities that have long campaigned for global corporate tax rates to be higher largely panned the announcement. Gabriela Bucher, executive director of Oxfam International, was among those saying the deal didn’t go far enough.
“It’s about time that some of the world’s most powerful economies force multinational corporations, including tech and pharma giants, to pay their fair share of tax,” Bucher said. “However, fixing a global minimum corporate tax rate of just 15 percent is far too low. It will do little to end the damaging race to the bottom on corporate tax and curtail the widespread use of tax havens.”
She added that it was “absurd for the G-7 to claim it is ‘overhauling’ a broken global tax system by setting up a global minimum corporate tax rate that is similar to the soft rates” charged by Ireland (which charges 12.5%), Switzerland (around 15%) and Singapore (around 17%).
“In a world beset by a pandemic, at a time of such desperate need, the G-7 looked at corporate balance sheets bursting at the seams with over-inflated profits ― and immediately looked away,” she said.
Years to conclude?
Gilles Moec, group chief economist at AXA Investment Managers, noted on Monday that much deeper coordination, negotiation and time was necessary for any agreement to be concluded, and that could take years.
“The G7 agreement will need to be confirmed at the G20 in July, and then negotiated even more broadly under the aegis of the OECD. The level — 15%, while Biden had opened with 21% — makes it possibly more digestible to the low-tax countries such as Ireland (its own tax rate is at 12.5%), which would make a generalized deal easier,” he said in a note.
“Still these countries will probably consider that once the principle of a minimum tax is agreed, then there is a significant likelihood the rate would gradually rise (the communique reads ‘at least 15%’), but it will take time and immense technical work before actual changes are implemented. The French Finance Minister Bruno le Maire mentioned ‘2 to 3 years’ on Sunday,” he added.