Will "Huge Wealth" Be Distributed? 16th July 20:22

New financial resources exceeding 10 trillion yen may be generated.

Such international tax rules have been broadly agreed.

The taxable target is huge global companies such as "GAFA", which continues to grow its business even in the event of a corona virus.

Will the "monopoly of wealth" of giant companies be stopped?

We approached behind the scenes of the negotiations.

(Ryo Kusuya, Reporter, Ministry of Economic Affairs)

G20 "Historical Agreement"

G20 = Finance Ministers and Central Bank Governors Meeting of 20 major countries held in Venice, Italy.

In a joint statement released early this month on the 11th of Japan time, it declared that it had "achieved a historic agreement" with new tax rules for rapidly emerging global companies such as "GAFA."

After the meeting, the ministers of each country sent a series of messages emphasizing the results.

"It's a historic change for the first time in 100 years" (Deputy Prime Minister and Finance Minister Aso)

"It's a big change once in a century" (Economic Minister Lemer, France)

"Welcome to middle class and workers all over the world That's the news "(US Treasury Secretary Janet Yellen)

What are the new international taxation rules?

What are the historical tax rules?

There are two points.

1. Set the minimum tax rate common to each country to 15% or more in order to stop the competition to reduce corporate tax for the purpose of attracting huge global companies.

2. Provide services such as online distribution of music and videos across national borders. It is to enable each country to tax according to the business model of the huge corporations that are developing.

The current international taxation rules were established about 100 years ago, but based on the idea centered on the manufacturing industry, companies that have "physical bases" such as factories and offices in that country are subject to taxation.

For this reason, the new rule that each country can tax if there are users of the service without a physical base is a "historical change" that overturns the conventional "common sense of tax".

"Monopoly of wealth" cannot catch up with the digital era ...

Why are we now reviewing the rules of international taxation?

This is because the corona sword has strengthened the awareness of the problem that "wealth is biased" among the giant global companies represented by "GAFA" (Google Apple, Facebook, Amazon), which continues to grow even in the corona sword.

Each country is making huge fiscal mobilizations to support the economies that have been hit by the spread of the infection, and this time it is necessary to increase tax revenues.

However, it was revealed that the taxation rules 100 years ago were not keeping up with the times due to the rapid digitization of the world economy and the globalization of companies.

When providing cross-border digital services such as video and music content sales like "GAFA", it is not necessary to have a base such as an office in the country where the market is located.

In that case, no matter how many people pay for the service, the company cannot be properly taxed, and the wealth of the people may be unilaterally sucked up.

In addition, more and more global companies are striving to "save taxes" by transferring profits to countries and regions with low tax rates called "tax havens."

If some countries lowered their corporate taxes in an attempt to attract companies, other countries would follow suit, and as a result, the competition to reduce corporate taxes remained unstoppable.

Japan was the first to speak out

It is said that Japan was the first to speak out to correct this situation.

At the 2013 G7 = Finance Ministers and Central Bank Governors' Meeting of the Seven Major Countries, Deputy Prime Minister and Finance Minister Aso called on the ministers of each country to start full-scale discussions.

In addition, Mr. Masatsugu Asakawa, Deputy Finance Minister of the Ministry of Finance (then and then the Vice Minister of Finance, now ADB = President of the Asian Development Bank) led the discussion as Chairman of the Tax Committee of the OECD = Organization for Economic Co-operation and Development, and in 2016 in Kyoto. It also held a large international conference.

It is said that this conference triggered the current negotiation framework that included countries with low tax rates other than OECD member countries as members.

It's been 5 years since then.

Discussions have been carried out step by step, as if untangling the entwined threads.

However, tax is a problem that concerns the sovereignty of the nation and the interests of each country collide head-on.

For that reason, discussions often failed when talking about specific institutional design.

In particular, at that time, the Trump administration in the United States was afraid that it would affect its global companies, and it became clear that it was reluctant, and the debate was temporarily stalled.

What made the negotiations progress at once ...

It was spring when the wind changed completely.

The trigger was a change in policy of the Biden administration.

In April, Treasury Secretary Janet Yellen called for "introduction of a minimum tax rate common to all countries," and in May, at a negotiation meeting held by OECD member countries, he proposed a concrete figure of "15% or more."

In addition, the fact that the financial situation had deteriorated as a result of the huge amount of fiscal mobilization by each country due to the corona disaster was also a driving force.

Momentum to properly collect taxes from global companies to secure financial resources has also increased in the United States.

At the G7 Finance Ministers' Meeting held in June,

▼ the common minimum tax rate was set to "15% or more", and ▼ large global companies were taxed on a part of their profits even if they did not have a base in Japan. We had reached an agreement by developing rules that could be used.

The next big mountain will be the G20 in July.

If there is any progress here, the final agreement will be visible at once.

Office-level negotiations “Underwater Offense and Defense”

However, just before the G20, Japanese negotiators gradually became more cautious.

"I'll do my best until the very end, but how far can I go ..." "It's not that easy."

Immediately before the G20, office-level negotiations were being held by groups made up of OECD member countries.

As many as 139 countries and territories participated in the negotiations, including Ireland, Hungary and China, which have so far attracted companies with low tax rates and tax incentives.

Compared to the G7, the members' speculations are different, and the hurdles for reaching an agreement are much higher.

Online coordination was underway among the major countries on a daily basis for the July 1 negotiation meeting, but negotiations were difficult.

Especially difficult was the proposal to set the minimum corporate tax rate to "15% or more".

For low-tax countries, having a minimum tax rate is itself the basis of a “business model”.

The reality was that it wasn't so easy to blame.

The breakthrough is "exception measures"

As the negotiation meeting was approaching, one of the breakthroughs was the "exception measure."

Corporate tax is calculated by multiplying "corporate income" by "tax rate", but "exception measures" allow a certain amount to be deducted from the underlying "income".

If the amount that can be deducted is large, the tax burden on the company will not increase substantially.

There was a dilemma that if it was too large, the minimum tax rate agreement itself could be watered down.

As a result of the last-minute adjustments between major countries, the agreement document will include an outline of "exception measures", but the chairman's proposal to postpone the detailed system design and instead include a "minimum tax rate of 15% or more". Confirm to do.

We were particular about the form of a "general agreement" and prioritized increasing momentum toward the "final agreement" aiming for October.

And on July 1st, a negotiation meeting was held inviting all the members.

Out of 139 members, 130 countries and regions have reached a "general agreement".

At a press conference after the event, a person in charge of the Ministry of Finance emphasized the results, saying, "Among the disagreements, the majority of more than 90% participated in the agreement."

I also felt relief from the great progress made in difficult negotiations.

Then, at the G20, we approved the "general agreement" by the countries participating in the negotiations based on these circumstances.

The joint statement stated that "after many years of debate, we have reached a historic agreement on the international taxation system," further boosting the momentum for the final agreement in October.

New tax revenue exceeds 10 trillion yen

How much money will the new international taxation rules generate?

According to OECD estimates, if the minimum corporate tax rate is 15%, new tax revenues of approximately $ 150 billion and JPY 16 trillion will be obtained each year.

In addition, if new tax rules are applied to global companies that do not have domestic bases, the total revenue of 100 billion dollars and 11 trillion yen in Japanese yen will be targeted every year in the countries and regions where the service is provided. It is said that it will be possible to tax.

Experts

How do international taxation experts view the negotiations so far?

Researcher Nobu Mori

"Negotiations have progressed at an unexpected speed. I think we have reached a very solid agreement. As a background to the progress of the negotiations, each country has taken support measures for those suffering from the new corona. I think there is a growing desire for giant global corporations to pay taxes and contribute. I think that prevention of widening disparities and a review of neoliberalism are inherent in this agreement. "

And what about the possible impact on Japan in the future?

Nobu Mori,

Research

Chief "There are many users in Japan who are receiving the services of giant IT companies such as GAFA. Some of the profits made by overseas companies are now taxed in Japan as well, increasing tax revenue On the other hand, if a Japanese company has a subsidiary or factory in a country with low taxation or tax incentives overseas, the tax burden may increase. However, the concrete system design It's not clogged, so it may be the focus of the future. "

The challenges for the final agreement are

Each country is drawing a blueprint for the final agreement at the G20 in October, after reconciling negotiations at the administrative level.

However, there are many issues left before the final agreement.

How do you persuade low-tax countries such as Ireland and Hungary that have not participated in this agreement?

And the detailed design of the postponed "exception rules" is also an important issue, as the agreement may be watered down depending on the content.

Furthermore, there are still disagreements about what percentage the minimum tax rate, which is set to "15% or more," should be set.

After many years of negotiations, the final form of the new rules for international taxation has finally come to light.

Is it possible to leave an effective "historical achievement"?

The leadership of Japan, which has led the discussion, continues to be questioned.

Reporter of the Ministry of Economic Affairs

Ryo Kusutani

Joined the

Bureau in

2008

After working at the Tottori Bureau, the

Ministry of

Economic Affairs is

currently in

charge of the

Ministry of Finance and the Cabinet Office.