The finance chiefs of the Group of 20 major economies on Saturday backed plans to set a global minimum corporate tax rate and other new rules to address tax avoidance by multinational firms, adding momentum to moves to finalize the plan in October.
The political level endorsement is seen as a key step toward concluding years of multilateral negotiations aimed at updating the century-old international tax system, while reflecting a growing desire among governments to raise revenues to invest in their recovery from the coronavirus pandemic.
In a joint communique issued after their two-day meeting in Venice, Italy, the G-20 members also called for faster coronavirus vaccine distribution, given that allowing developing countries to lag behind in terms of availability of such supplies leaves their populations vulnerable to outbreaks and could allow contagious variants to emerge and ricochet around the world.
The global economic recovery from the pandemic is characterized by "great divergences across and within countries and remains exposed to downside risks, in particular the spread of new variants of the COVID-19 virus and different paces of vaccination," the communique said.
The meeting was attended by Japanese Finance Minister Taro Aso and U.S. Treasury Secretary Janet Yellen, among others, making it the first in-person gathering of G-20 finance ministers and central bank governors since the pandemic began accelerating early last year.
The talks were held just about a week after a broad agreement was reached by 130 nations and regions on a two-pillar package on international tax reform -- introducing duties on the world's largest and profitable companies, including IT giants, as well as a common minimum tax rate of at least 15 percent.
The deal, now supported by 132 economies, is the result of negotiations coordinated by the Organization for Economic Cooperation and Development for much of the last decade.
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Winning the backing from ministers of the G-20, which brings together key industrialized and developing economies, is seen as a vital step to securing final approval at the leaders' meeting scheduled in late October.
In the communique, the participants sought to add further impetus to the process by urging more countries to sign on the deal.
Seven countries that have been involved in the OECD talks have yet to do so, including Hungary and Ireland whose low corporate tax rates have apparently been attractive to companies.
Under the plan, the so-called Pillar One intends to change existing taxation rules that have been heavily tied to a company's physical presence, given that digital commerce has made it possible for companies to book profits in low-tax countries no matter where their customers are located.
The new rules would "re-allocate" taxing rights over multinationals in a fairer manner among countries, meaning that large companies will have to pay taxes in countries where they have actual business activities and are earning profits.
About 100 multinational companies, and possibly several Japanese firms, may become subject to the new tax.
Pillar Two, or the global minimum corporate tax rate, will seek to put a floor on the competition among countries to offer the lowest rate to lure companies.
The OECD has estimated that under Pillar One, taxing rights on more than $100 billion of profit will be re-allocated to countries each year, while Pillar Two will generate around $150 billion in additional global tax revenues annually.
The Paris-based organization has said that an October deadline has been set for finalizing the remaining "technical work," with the aim of implementing the new rules in 2023.
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Moves toward reaching an agreement have gained steam in recent months after the U.S. administration of President Joe Biden, which is seeking to revive multilateralism, proposed that the minimum corporate tax rate be at least 15 percent globally.
The U.S. idea also seems to have resonated well among the Group of Seven industrialized countries, including Japan, that have seen their fiscal health deteriorate due to increased spending to support their pandemic-hit economies.
Aso told a press conference Saturday that he "strongly welcomes" the G-20 endorsement of the tax reform issue, calling it a "landmark" outcome.
French Finance Minister Bruno Le Maire also hailed the new taxation architecture as a "revolution" to ensure fairness. He said the next step will be in October when G-20 finance chiefs "define the very last parameters" of the rules.
The G-20, which includes all G-7 members, consists of Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States and the European Union.