The US and other Group of Seven nations have agreed to a “side-by-side” solution of taxation aimed at avoiding a global tax war, which would exempt US companies from some parts of an existing global tax regime, reported Bloomberg.
US officials have agreed to remove a provision from President Donald Trump’s tax-cut bill that would have increased taxes on the US income of non-US-based businesses and individuals.
This move could undermine the landmark 2021 accord aimed at curbing tax avoidance by multinationals. Known as Section 899, the provision was dubbed the “revenge tax” because it targeted countries whose tax policies Washington saw as discriminatory.
Citing a statement by the G-7 on June 28, Bloomberg reported that the side-by-side system could “provide greater stability and certainty in the international tax system moving forward”.
The other G-7 members will support the US’s position in negotiations with Group of 20 countries and the Organization for Economic Cooperation and Development (OECD), which has been hosting global talks on corporate taxes, with some proposals attracting opposition from the US.
Officials from the G-7 said they look forward to coming up with a solution that is “acceptable and implementable to all,” according to the statement.
The issue of “digital services taxes” is only partially addressed. Some countries impose these taxes on the profits of US-based technology companies including Meta Platforms Inc. and Amazon.com Inc.
The effort to establish a side-by-side system will include a “constructive dialogue on the taxation of the digital economy and on preserving the tax sovereignty of all countries,” according to the G-7 statement.
Global Deal Faces Backlash
The deal has also drawn criticism from France’s Tax Justice Network, which warned that it “undermines global efforts to curb tax avoidance,” calling it a “hasty cave-in” that could weaken the international minimum tax regime.
Nobel economics laureate Joseph Stiglitz also cautioned that the agreement may harm public revenues, saying that the G-7 accord appears to have “put the interests of multinationals ahead of those of small and medium businesses, their own citizens and average people around the planet,” according to FT.
