U.S. President Joe Biden’s proposals to curb tax evasion by international companies will be a major theme on Friday when finance ministers from the Group of Seven Wealthy Democrocy begin talks on economic cooperation in London.
Biden’s demand for at least 15% of the world’s lower corporate taxes has hampered international tax negotiations and raised the prospect of an agreement this year, although important factors such as the real level have yet to be decided. Authorization from the G-7 could help build consensus on ongoing negotiations between more than 140 countries held in Paris.
The broader theme of Friday’s and Saturday’s meetings will be to restore the close co-operation between the seven allies after four years of solidarity under former US President Donald Trump. His solitary approach and imposing trade sanctions on a united democracy have disrupted the party – or its members face growing challenges from rivals such as China and Russia. Officials will also discuss funding for post-epidemic economic recovery through government funding, drug availability and distribution, and efforts to combat climate change.
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The head of the British Treasury, Rishi Sunak, is calling a meeting at the Lancaster House in London because Britain currently has a rotating chair for the party. The summit prepares the way for the June 11-13 summit of the heads of state of the G-7 government and the Government led by British Prime Minister Boris Johnson in Carbis Bay, Cornwall.
Biden’s quest to end what Finance Secretary Janet Yellen called a “race down” for low-income countries has given new impetus to Paris talks called by the Organization for Economic Cooperation and Development. This came to a standstill, in part because of pressure from Trump’s administration that the international community be allowed to leave the new tax system.
The Paris tax rhetoric focuses on two pillars: The first is the lowest international standard to prevent international companies from using complex legal and financial schemes to transfer profits to low-income countries where they do not do little or no business at all. The second is to find a way to tax companies – especially those designed for the Internet – that can make a profit in countries where they are physically incapable and thus tax-exempt.
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The lower rate will prevent tax evasion because countries may agree to use it in the foreign companies of their companies if that money is not taxed overseas.
France has already introduced a digital tax against major Internet companies, which has led to opposition from the United States in what was seen as a move to improperly target American companies such as Google and Amazon. Biden suggested a method that would not select technology companies. He proposed to allow countries to pay local share of revenue from the list of the 100 most profitable companies in the world, for any type of business. One goal of the international agreement was to get France and other countries to follow its lead to waive a single digital tax to implement a more global approach.
French Finance Minister Bruno Le Maire has called on all G-7 countries to “support the digital tax agreement and small-scale tax agreement at Friday’s London conference.”
“This is a decisive step ahead of the G-20 in Venice in early July,” he said. “It’s close. We owe it to our citizens.”
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The group of seven is an informal forum between Canada, France, Germany, Italy, Japan, the UK and the United States. Representatives of the European Union also attend. Its decisions are not legally binding, but leaders can use the forum to gain political influence.
