G20 finance ministers may reach agreement on the tax plan in Venice. — © AFP
G20 finance ministers gather Friday in Venice, with global tax reform top of the agenda as the world’s biggest economies seek to ensure multinational companies pay their fair share.
Under Italy’s Group of 20 presidency, ministers and central bankers from the 19 richest countries and the European Union are meeting in person for the first time since talks in Riyadh in February 2020, at the start of the coronavirus pandemic.
US Treasury Secretary Janet Yellen, European Central Bank (ECB) chief Christine Lagarde and Russian finance minister Anton Siluanov are among those gathering under tight security in Venice.
However, China and India have opted for a virtual presence in the lagoon city, where the Arsenal area has been closed off from tourists and locals for the two-day event.
The countries of the G20 have already signed up to a framework for reform agreed on July 1 among members of the Organisation for Economic Cooperation and Development (OECD), notably for a global minimum corporation tax rate of 15 percent.
But they are now seeking a political deal that will help make the agreement — aimed at ending tax havens and stopping global companies benefiting as nations compete to offer the lowest rates — become a reality.
The minimum rate is one of two so-called pillars of global tax reform that have been under negotiation for years.
The other aims to tax multinationals where they make their profits, not where they are headquartered, and is particularly aimed at technology giants such as Google, Amazon, Facebook and Apple, who pay derisory levels of tax compared to their income.
According to a draft obtained by AFP of the final statement, which is still being discussed, the finance ministers in Venice will “endorse” the OECD’s “historic agreement on a more stable and fairer international tax architecture”.
– Be realistic –
Final agreement on the minimum tax rate is not expected until the run-up to the G20 leaders’ summit in Rome in October.
But the Venice talks are an opportunity to thrash out further details and exert pressure on those who have not yet signed up to the OECD deal, which so far has been backed by 131 countries.
EU members Estonia, Hungary and Ireland, which have all used low tax rates to attract investment, are among the hold-outs.
Several countries by contrast are pushing for a higher rate than 15 percent, notably the United States and Germany, but there are few illusions about their chances.
“We must be realistic,” said a German government source. “Other countries already have a problem with this level.”
Even if a minimum rate is implemented, this would not necessarily mean the end of tax havens, noted Giuliano Noci, professor of strategy at Milan’s Polytechnic business school.
“The rates fixed by different countries can still vary significantly, and so fiscal optimisation remains at the heart of the strategy of technology giants and other multinationals,” he told AFP.
– Support for vulnerable countries –
The G20 ministers in Venice are also expected to support an initiative by the International Monetary Fund (IMF) to increase aid to the most vulnerable countries through the allocation of $650 billion of special drawing rights.
SDRs are international reserve assets created by the IMF that provide these countries with extra liquidity.
According to the draft G20 statement, the Venice participants will call for “contributions from all countries able to do so to reach an ambitious target in support of vulnerable countries” — without fixing an amount.
IMF chief Kristalina Georgieva warned this week of a “deepening divergence” between rich and poor nations, warning the pandemic and the resulting economic damage had dealt a “devastating double-blow” to the poorest countries.