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U.S. Treasury Deputy Secretary Wally Adeyemo said he expects strong backing from G7 peers for Washington’s proposed 15%-plus global minimum corporate tax. The Group of Seven (G7) consists of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. These are the seven nations that are the largest IMF-advanced countries in the world. France, Germany, Italy, and Japan have already made positive comments about the Treasury’s proposal. Adeyemo may receive this support in an in-person meeting of G7 finance ministers in London on June 4-5. The U.S. Treasury Department of the United States offered on Thursday to accept a minimum rate of 15%, much below its proposed 21% minimum for U.S. multinational firms. In 2017, the Trump administration and Republicans in Congress cut the rate to 21% 2017 and instituted a minimum tax rate on overseas income from intangible sources of 10.5%
Multinational companies shifting profits and tax revenues too low tax countries is a significant issue, and the G7 countries are trying to discourage them from doing so. The global minimum tax rate is supposed to apply to every corporation’s overseas profits. Hence, if these countries agree on a global minimum, their governments could still set the local tax rates as they see fit. If the companies pay a lower rate in their home countries, their countries could “top-up” their taxes to the minimum rate, cutting the advantage of tax havens.
Many countries which are not considered tax havens- such as Thailand, Vietnam, and the U.K., would move to the safe side with the15% tax. Several prominent American companies make more than 50% of their income internationally. According to an analysis by Goldman Sachs, they have both foreign effective tax rates and consensus 2022 effective tax rates below 15%. Paradoxically, the lower the minimum proposed, the greater the threat to the most apparent havens like the Cayman Islands and the British Virgin Islands. Since those territories have 0% corporation tax rates, they will be hit under an agreement on any level.
With a universally agreed global minimum tax, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage, allowing them to compete on innovation, infrastructure, and other attributes. Other items still to be negotiated include whether industries like investment funds and real estate investment trusts should be covered and apply the new rate. It needs to be compatible with the 2017 U.S. tax reforms aimed at removing tax-base erosion. French Finance Minister Bruno Le Maire supported the latest U.S. proposal, saying it “could be a good compromise.” At the same time, his German counterpart Olaf Scholz approved of it, calling it “big progress.” Most nations are welcoming this move as a step towards a more level playing field.