Yellen Faces Deal-Making Test in Wrangle Over Global Tax
Treasury Secretary Janet Yellen is facing pressure to move toward a global tax deal by the end of the week as she meets her Group of Seven counterparts for the first time as the world’s most powerful finance minister at a summit in London.
Yellen’s team is downplaying expectations for progress this month, seeing the meetings over the coming days as an opportunity to build momentum toward an international tax agreement at the Group of 20 meetings in July, a U.S. Treasury official said.
That caution is at odds with calls for urgency from European finance ministers, who have painted Yellen’s arrival and recent proposals from Washington as the key turning point in a years-long trans-Atlantic battle over how to tax the likes of Amazon.com Inc. and Facebook Inc.
“We therefore commit to defining a common position on a new international tax system at the G-7 finance ministers meeting in London today,” the finance ministers of France, Germany, Italy and Spain said in a letter to The Guardian newspaper.
“We are confident it will create the momentum needed to reach a global agreement at the G-20 in Venice in July. It is within our reach. Let’s make sure it happens. We owe it to our citizens.”
Yellen’s visit marks her first trip abroad as Treasury chief. In bilateral and group meetings, she will reinforce President Joe Biden’s message to the world that the U.S. has returned to a multilateral leadership role after four years of Trump-era “America first” distancing from allies. Biden will himself take that message on his own debut presidential trip abroad, with stops later this month in southwest England, for the G-7 summit, and in Brussels.
Yellen also will use the G-7 to remind her counterparts not to rely on the U.S. as the only driver for global growth and to encourage stimulative fiscal policy, according to a Treasury official speaking to reporters on the condition of anonymity. Help for low-income countries and action on climate change are also on her agenda, the official said.
While the European Union has rolled out an historic, joint stimulus package in response to Covid-19, fiscal initiatives on the continent have been far more modest than those enacted in Washington.
By contrast with the days of former President Donald Trump, this week’s meetings will be light on trade and China, according to the U.S. Treasury official.
The key task for Yellen will be working with global negotiators to rewrite tax rules for the digital era. Proposals from the U.S. have transformed the talks, which had hit a stalemate during Trump’s presidency, but countries are still tussling over thresholds for revenue and profit that would resolve the thorny issue of how and where to tax globe-trotting U.S. tech giants.
European officials are considering a U.S. proposal to make companies with at least $20 billion in annual revenue pay more of their tax bill in places they operate, Bloomberg News reported Wednesday. Negotiators also continue to haggle over a profitability threshold -- particularly with regard to setting a level that would ensure low-margin Amazon pays up.
France’s Finance Minister Bruno Le Maire has led the calls in Europe insisting that getting a broad agreement in London is a necessary step toward a global deal. While officials want any pact to be as explicit as possible, there will at the same time be little space in a G-7 communique for the multitude of technicalities required to resolve political divisions. Moreover, even if the major economies settle disagreements, the ultimate decision lies with around 140 countries in those talks.
The host of the London confab, U.K. Chancellor of the Exchequer Rishi Sunak, said he’s “hugely optimistic” that the first in-person gathering of G-7 finance ministers since 2019 will deliver some “concrete outcomes” to help guide an international recovery from the pandemic.
While Sunak is open to the U.S. proposal on taxation, the revenue and profitability thresholds in it remain live issues for discussion, and any eventual deal must capture the right companies, according to two people familiar with the matter. Sunak is pushing for a united G-7 position at the meeting, with a final decision resting with the OECD and G-20, they said.
Sunak also is pushing to impose mandatory reporting of environmental risks on big companies. Under the proposals, the biggest firms would report annually on their exposure to risks and opportunities presented by climate change. It would follow guidelines set out in 2017 by the Task Force on Climate-Related Financial Disclosures.
The U.K. is cautiously optimistic that there will be agreement among the G-7 around mandatory climate reporting by big companies, a person familiar with the matter said.
Yellen comes to the G-7 session having attended many similar gatherings when she served as Federal Reserve chair.
“She has enormous credibility as she sits at that table,” said Nathan Sheets, a former Fed economist and Treasury official in the Obama administration who’s now head of global macroeconomic research at PGIM Fixed Income. “She’s seen as someone who understands the issues, who is prepared and has been at that table before.”
She also brings the gravitas of a policy maker who was on the front lines of battling the global financial crisis and its stubbornly slow recovery.
“When she says we have learned from the past decade and have to do things differently this time, that message comes infused with credibility,” said Josh Lipsky of the Atlantic Council.
But attending a G-7 as Treasury secretary -- a more visible role that carries more political responsibility -- will be new for Yellen. The London gathering may pose a test of whether the Ph.D. economist can emerge as a high-level deal maker.
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