G20 gives green light to global taxation of multinationals

The European commissioner for cconomic affairs, Paolo Gentiloni, hailed an international accord as a "victory for tax fairness". Photo: Shutterstock

The European commissioner for cconomic affairs, Paolo Gentiloni, hailed an international accord as a "victory for tax fairness". Photo: Shutterstock

Meeting in Venice, the G20 finance Ministers agreed on a future minimum taxation of multinationals' profits on a global scale. Luxembourg has contributed "actively and proactively".

It was undoubtedly a historic agreement that was sealed in Venice on Saturday, after two days of negotiations, by the G20 finance ministers (the 19 richest countries in the world and the European Union). Le Monde, the Daily Telegraph, the Wall Street Journal and the Süddeutsche Zeitung all see it as such: from 2023 onwards, at the earliest but this seems doubtful, the profits of multinationals will be taxed at a minimum of 15% throughout the world.

This measure, which is intended to combat tax havens, will also strengthen the "right to tax" of countries.

A measure had already been agreed by the G7 meeting in London and then by 130 OECD member countries.

The future global tax will be based on two main pillars:

- The first pillar of the reform is that between 20% and 30% of residual profit, i.e., profit above the 10% threshold, should be taxed in the country of consumption. Initially, web giants--such as Amazon, Facebook and Apple--were targeted by this provision. At the request of the United States, other large companies are affected, in particular companies with a turnover exceeding 20 billion euros. The financial sector should not be affected by the new rules.

- The second pillar is based on an overall minimum tax of 15% on the profits of multinationals. This rate would be applied to companies with a turnover of more than €750 million. A number of entities are excluded from the scope of the 15% rate: for example, pension funds, investment funds, non-profit organisations and public entities.

In October, the G20 will meet again to set the minimum tax rate and determine how profits will be allocated between countries, explains the Financial Times. The G20 leaders will then simply sign off on the agreement.

However, it will be difficult to implement the agreement in 2023, since the Republicans in the US have declared that they do not want it. And they are not the only ones to oppose it. In Europe, Ireland, Hungary and Estonia are opposed. And China will have to be convinced in the coming months.

For the French minister of the economy, Bruno Le Maire, "there will be no turning back. The G20 Finance Summit in Venice is a decisive G20 that marks a before and after. Today we are carrying out a fiscal revolution. We are turning our backs on decades of the race to the bottom, which has proven to be totally ineffective. US treasury secretary Janet Yellen called on the world "to move quickly to finalise" the deal, while EU economy commissioner Paolo Gentiloni hailed a "victory for tax fairness".

An impact difficult to assess for Luxembourg

This "global fiscal bang" was discussed on Friday in the Chamber of Deputies finance committee.

Luxembourg’s finance minister, Pierre Gramegna (DP), said that Luxembourg had contributed "proactively and actively". He also said that it was currently difficult to assess the impact of a 15% tax on Luxembourg. He was certain that this agreement will bring calm to the international scene and will protect Luxembourg from the kind of attacks that have occurred in recent years. Its Triple A rating, its political stability and the social peace that reigns there will be assets that will allow it to distinguish itself from other countries, Gramegna stated.