G20 backs OECD agreed tax system for multinationals

G20 finance ministers and central bank governors today endorsed the mechanism on multinational taxation agreed on 1 July in the framework of the OECD, and will now focus on convincing those countries that are still reluctant to join.

"This is the result of a common effort. I hope that the countries that have not joined will change their decision," said Italian Finance Minister Daniele Franco.

In the European Union (EU), Ireland, Hungary and Estonia, which have for years attracted private investment because of their low tax rates, have been hesitant to join the mechanism, but the Italian minister hoped that "they will change their minds" because, he said, the G20 countries account for around 90 % of global gross domestic product (GDP) and this "is a pressure on the rest".

US Treasury Secretary Janet Yellen also said today in a meeting with the press that the G20 countries will try to understand the reluctance of states such as Ireland, Estonia and Hungary to join the global agreement on the taxation of multinationals until October, but she stressed that it is not essential for all of them to join.

"We are trying to understand the reservations of the countries that have not joined" the text for this international tax reform agreed on 1 July by 130 countries and jurisdictions of the 139 that form part of the so-called inclusive framework of the Organisation for Economic Cooperation and Development (OECD).

However, he stressed, "it is not essential that all countries are in".

For his part, the European Commissioner for the Economy, Paolo Gentiloni, explained to the media that the European Union will begin working with these three countries from "next Monday" in the Eurogroup in a meeting that Yellen will attend.

The agreement reached at the G20 is "historic", as the ministers and bankers stressed in the final declaration, because it will try to prevent multinationals from sheltering in tax havens and avoiding paying taxes.

The tax system is based on two pillars; the first concerns all companies with a global turnover of more than 20 billion euros and a profitability (profit to revenue ratio) of more than 10%.

Countries where these groups have revenues of more than 1 million (or 250,000 in the case of small states) will be entitled to a share of the tax to be paid.

What will be distributed among them is between 20 and 30 % of the residual profit, once the country where the company is based has kept the tax corresponding to 10 % of the profitability.

French Finance Minister Bruno Le Maire told the media that France has asked for 25 %.

The second pillar is to apply a minimum corporate tax rate of at least 15% to companies with a turnover of at least EUR 750 million.

The figure will continue to be debated, after countries such as France, Germany, Argentina or the United States have called for it to be more ambitious, above 15%.

"I firmly believe that 15% is not enough. We have to do more," Le Maire said.

The German Finance Minister, Olaf Scholz, in statements to the media, also described the agreement within the framework of the G20 as a "great historic moment", and said that when the consensus was reached "there was a round of applause" in the room, because "everyone understood that something big was happening".

He said that this global system would put an end to the "race to the bottom" of countries to attract private investment, and that it would make it possible to improve the situation of public finances, something that is particularly evident with the current coronavirus crisis.

The German minister also highlighted the understanding within the G20 to avoid "unfair practices" in the field of competition that contribute to global warming, so that companies in a territory with laxer environmental legislation do not have a competitive advantage over others based in stricter regions.

In the signed declaration, G20 ministers and bankers recognised the importance of establishing a global carbon floor price as a potential tool to address climate change and of coordination to implement joint actions to reduce greenhouse gas emissions.

These policies can include investments in sustainable infrastructure and technologies that promote decarbonisation and clean energy.

The G20 also expressed concern that the spread of coronavirus variants, especially delta, could affect global economic recovery, and called for accelerated vaccination worldwide.