Exception to the rule? G7 Tax Agreement Triggers Separation Talk

Exception to the rule?  G7 Tax Agreement Triggers Separation Talk

“If you want to enforce minimum taxation, you could take view that no carve-outs should be made because you should impose the minimum tax. But that is not realistic,” University of Lausanne Law Professor Robert Danon said. But the official communique from G7 finance ministers made no mention of whether exceptions and exemptions should be made in broader talks underway, leaving a critical question hanging.

Countries have long used tax incentives to advance policy priorities ranging from boosting research and development to attracting foreign investment. So far, other G20 emerging market countries are rallying behind the G7 with the finance ministers of South Africa, Mexico and Indonesia backing the deal in a Washington Post op-ed. read more

Another official told Reuters that China was against the 15% agreed by the G7 and winning carve-outs would be its condition for getting behind the rate. “I’m confident that at the end we will also reach a deal with China. Because, as always in such international negotiations, it will be a give and take,” one negotiator said.

One official briefed on talks said that Beijing had “legitimate concerns” about such zones, but China also offers attractive tax rates to its technology firms, some of which like Alibaba and Tencent (0700.HK) are incorporated in the Cayman Islands, where there is no corporate tax. Some are now reluctant to give up those tools, including China, which has for decades used special economic zones with low taxation to attract foreign investment, which has been central to its economic development.

CARVING UP So far Beijing has kept its cards close, with the foreign ministry saying that the G20 finance ministers should accommodate the concerns of all sides. read more

While that went largely unchallenged, that is not the case for an OECD suggestion in the blueprint that international shipping could fall out of the scope for the minimum tax. The Organisation for Economic Cooperation and Development, which has been steering the talks at a technical level, said in a blueprint for the global minimum tax in October that a case could be made for excluding investment funds, pension funds, sovereign wealth funds, government bodies, international organisations, and non-profit organisations. Nearly 140 countries are due to agree at a June 30-July 1 online meeting on the future rules for cross-border taxation before turning the package over to the G20 for backing at a meeting on July 9-10.

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