VENICE—Finance chiefs from the Group of 20 leading economies on Saturday endorsed an overhaul of the rules for taxing international companies, a landmark achievement of global cooperation after years of tensions.
G-20 members have rarely been able to agree to such ambitious changes over the past decade of disputes over trade, investment and jobs, although they did work together to offset the economic impact of the Covid-19 pandemic. The tax agreement, negotiated earlier this month by 130 countries, has raised hopes that major economies can find common approaches to tackling other global problems, such as climate change and trade.
But raising taxes to pay for the mounting cost of tackling the Covid-19 pandemic is relatively straightforward for governments that all stand to gain to different degrees, whereas tackling climate change requires more fundamental economic changes and arguments over which countries should bear how much of the burden.
The tax overhaul breaks new ground in two ways. It is the first time that governments have set a floor for the tax rate faced by big international companies. G-20 governments have also overturned a longstanding principle under which profits are taxed where businesses have a physical presence—known as a permanent establishment—rather than where their sales are made.
“These past six weeks have really been momentous for economic diplomacy,” said U.S. Treasury Secretary Janet Yellen. “We’re seeing a revival of multilateralism on a whole host of issues.”