G-7 tax reform proposal catches fire from small developing countries | Voice of America
Small economies and developing countries are rallying to a rival global tax reform plan to that launched last week by the wealthy G-7 countries.
Under the deal, the G-7 countries support a global minimum corporate tax of 15%, but smaller countries say the reform would hurt their economies, if passed across the world, and delay their recovery from the coronavirus pandemic.
They complain that the reform, proposed by US President Joe Biden as part of a larger package aimed at tackling tax evasion by large companies that move to where their profits are taxed, will only benefit rich countries. They argue they should be allowed to offer corporate tax rates lower than the G-7 minimum.
But G-7 finance ministers say it will simply allow a continuation of a race to the bottom, where countries compete for the affairs of multinationals by lowering corporate tax rates.
Irish Prime Minister Leo Varadkar said raising his country’s corporate tax rate by 12.5% would be “harmful to the national interest”. Other leaders of smaller countries say that using tax rates to attract foreign investment is crucial for their economic well-being.
Many support a rival plan that the United Nations Tax Committee has developed that focuses specifically on digital giants and grants additional taxing rights to countries where digital services are provided and revenue is generated as opposed to the where the country is based, allowing developing economies to capture more income, too. India, Argentina, Ecuador, Ghana, Nigeria and Vietnam are among the emerging economies that favor the A map, arguing that it reflects the economic needs of developing countries.
“The G-7 change is, in part, about getting big business to pay more taxes, closing loopholes that allow them to shift their profits around the world. But behind all the fine words, there is also a desperate race by countries to generate income for their own finances, following a huge COVID-19 blow, ”complains economic commentator Eoin Burke-Kennedy in a commentary for the Irish Times.
The G-7 proposal follows the lines of a reform that the Organization for Economic Co-operation and Development – a forum of 38 countries made up mostly of high-income countries – has been advocating for years, which would see multinationals pay a higher price. proportion of taxes in countries where they make profits and establish a minimum overall tax rate. But that would put a damper on small, entrepreneurial nations, and not just those widely seen as brazen tax havens, opponents say.
G-7 finance ministers hope last week’s summit will give impetus to upcoming tax talks with 135 countries in Paris and a Group of 20 meeting in Venice next month. Under the G-7 proposal, companies would pay the bulk of their taxes in the country where they are headquartered, even when the profits, labor and raw materials used come from countries in which they are headquartered. development. Much of the proposal focuses on 100 of the world’s largest companies.
US Treasury Secretary Janet Yellen said the G-7 proposal guarantees greater fairness. “This global minimum tax would end the race to the bottom in corporate taxation and ensure fairness for the middle class and workers in the United States and around the world,” she posted on Twitter.
But this is not the view of several small European governments, which for years have been pushing back the European Union’s efforts to establish a minimum corporate tax for member states and whose opposition did not decrease. Hungarian Prime Minister Viktor Orban has ridiculed the tax proposal.
“I consider it absurd that a world organization claims the right to say which taxes Hungary can collect and which taxes it cannot,” Orban said at a recent press conference. Hungary has an enterprise rate of 9%, the lowest in the EU, which has helped the country attract foreign investment, according to Hungarian officials. They say a global minimum tax rate would likely impact 2,000 to 3,000 large companies in Hungary.
The Polish government has also expressed its opposition, largely for reasons of national sovereignty. The country’s corporate tax rate is 19%, well above the proposed minimum, and it has spoken out in recent years against tax havens and digital giants that evade tax.
But Polish Finance Minister Tadeusz Koscinski told the Financial Times last week that Warsaw does not want the G-7 “to dictate the tax rate we have in our country”. The Poles also suggested that domestic companies should be granted a waiver of a minimum corporate tax. “We do not support the idea of a minimum tax on the profits that companies make in Poland on doing business in Poland,” he said.
Ireland has been the furthest along in expressing its opposition. Irish Finance Minister Paschal Donohoe has complained that small nations do not have the same capacity to scale as large economies.
The African Tax Administration Forum, an advisory group for African governments, says there should be a tiered approach in which minimum thresholds could be set at lower levels for small economies. “We do not believe that a single threshold for all economies is fair,” he said in a statement. The strength of opposition to the G-7 proposal suggests that it will be difficult to get a sign from the G-20 next month or from a majority of the 135 countries that will meet soon in Paris, observers say. financial sector.