Europeans Are Optimistic About Global Tax Agreement by June

(Bloomberg) --

European Union officials are looking to wrap up a global agreement to harmonize corporate taxes and impose more effective levies on internet giants by the end of June following an appeal from the U.S.

Treasury Secretary Janet Yellen’s call for a global minimum tax rate for companies was warmly received. Paolo Gentiloni, the EU commissioner for economic affairs, raised the prospect of a breakthrough by the summer and German Finance Minister Olaf Scholz called the proposal “a breakthrough.”

“I’m optimistic that we can end this race to the bottom on corporate-tax activity,” Scholz told reporters on Tuesday ahead of a Wednesday meeting with G-20 counterparts where tax harmonization will be on the agenda.

Yellen outlined the case for a harmonized corporate tax rate and new digital levies across the world’s major economies in her first significant speech on international economic policy since taking up her post in President Joe Biden’s administration. It was framed as part of an effort to restore global leadership and credibility with U.S. allies following the unilateralist approach of the Donald Trump era.

Her remarks offer a significant boost to years-long talks -- led by the Organization for Economic Cooperation and Development with about 140 countries -- to develop both a global agreement on minimum levies and new rules on taxing firms in the digital age.

Yellen’s proposal on minimum tax is technically possible and something the OECD has already started working on, Pascal Saint-Amans, director of the center for tax policy at the Paris-based OECD, said in an interview with Bloomberg Television’s Caroline Connan.

“We have a blueprint that is ready and building on this I think we can deliver such a solution by the summer,” Saint-Amans said.

He added there is also progress on new tax rules for the digital economy -- the more contested element of the OECD talks that was blocked during the Trump era -- with proposals coming in from a new team of U.S. negotiators.

“It’s very good news,” Gentiloni said in an interview with Bloomberg Television’s Francine Lacqua, welcoming “this new multilateral atmosphere with the new U.S. administration and the strong possibility of cooperation in the global arena. One of the main results could be finding agreements in global taxation.”

The Controversy

Another European official, while welcoming Yellen’s comments, said that Biden’s talk of a 21% tax rate remains controversial and insisted that there has to be agreement on the tax base for companies before a deal can be struck on the rate. The EU will keep insisting that the digital tax and the global minimum corporate tax should be agreed in one package, the official added.

A French finance ministry official said the U.S. stance on minimum tax could rekindle negotiations between European countries, where some states have very low rates.

But the official also said a 21% in the U.S. would not necessarily be a reference point in the OECD talks, which have tended to be focused on a much lower rate around 12.5%.

With the U.K. and Italy hosting the Group of Seven and G-20 respectively, there is also renewed vigor to tackle fiscal rules. U.K. Chancellor of the Exchequer Rishi Sunak said last month that a solution is “within our grasp.”

©2021 Bloomberg L.P.