09 June 2021

POLITICO: The main hurdle in getting a global tax deal is Europe

The G7 countries agreed on joint proposals for revamping how the biggest companies are taxed worldwide. But European Union governments that have long wooed corporations to their shores with generous tax rates could now prove the biggest obstacle to finalizing a global deal.

As leaders of the world's largest democracies descend on the United Kingdom at the end of the week, many in the 27-country bloc are already crying foul, despite vocal support for the G7's recently-announced plans from both France and Germany.

At the center of the upcoming fight is how the potential global tax agreement could undermine decades of work by the likes of Ireland and Cyprus to entice some of the world's biggest companies, including Google and Facebook, to set up shop locally by offering them rock-bottom corporate tax rates.

These EU members' low corporate tax rates have been criticized by others for allowing some of the world's largest companies to avoid paying their fair share. Governments with bargain-basement tax rates say they are necessary to convince companies to invest locally and generate billions in additional tax revenues via payroll and other taxes.

Those deals, which have enticed large multinational companies to set up shop in these low-tax countries, could be thrown out under the G7's plans, which include setting a minimum global corporate tax threshold of 15 percent.

Low corporate tax countries aren't willing to give up without a fight.

Many in Europe's smallest countries — as well as those like Hungary that have embraced a national corporate tax regime of just 9 percent — are skeptical of the G7's proposals, and caution that nothing has yet been decided under the wider global tax talks being coordinated by the Organization for Economic Cooperation and Development (OECD).

Half a dozen EU diplomats and those involved in the ongoing negotiations told POLITICO that reaching a European-wide deal was far from settled — and that the political fight will continue over the coming years, regardless of what a G20 meeting planned in early July decides about overhauling the world's digital tax regime.

"There are 139 countries at the table, and any agreement will have to meet the needs of small and large countries, developed and developing," Paschal Donohoe, Ireland's finance minister, wrote on Twitter after the G7 communique emerged. "It is in everyone’s interest to achieve a sustainable, ambitious and equitable agreement on the international tax architecture."...

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