France and Germany have given their backing to the U.S. proposal for a 21% minimum tax on multinational companies, adding momentum to efforts to overhaul global rules despite reluctance from some smaller European countries.
The plan by President Joe Biden's administration earlier this month transformed global negotiations after years of being bogged down. It also carries a significantly higher levy on companies than the 12.5% minimum tax previously discussed.
The lower rate was favored by countries including Ireland, which charges that level of tax to attract corporate investment. Such practices have long been controversial though, and have become more so now that governments have built up massive debt burdens to fight the coronavirus pandemic.
"If the Biden administration proposes a 21% rate and there is consensus, it would be acceptable for us," French Finance Minister Bruno Le Maire told Le Figaro and Die Zeit newspapers in a joint interview with his German peer Olaf Scholz.
"It is important that we agree on a percentage -- where exactly that will lie, the talks in the next few weeks will determine," Scholz said. "Personally I would have nothing against the U.S. proposal."
The U.S. proposal is part of a two-pillar strategy for ensuring that multinational companies pay at least a specific rate of tax, and that they pay it proportionally in countries where they do business. U.S. technology giants such as Alphabet Inc. and Facebook Inc. are frequently accused of shifting profits to low-tax locations to reduce their bill.
The precise rate of the minimum tax could be one sticking point for a deal that requires the agreement of almost 140 countries.
The other pillar -- where companies pay tax --is likely to prove even trickier as countries have long been at odds over whether the new arrangement would capture all the biggest technology firms. Countries such as France have said digital giants must be the target of new rules, while successive American governments have rejected any ring-fencing.
To resolve that issue, the Biden administration proposed a relatively simple model based in part on profitability that isn't restricted to specific business types. It aims to ensure the world's 100 or so biggest companies pay more in places they actually do business.
Still, there are concerns the proposal may not cover companies with low profit margins but high total earnings -- most notably Amazon.com Inc.
The French government is examining the criteria and has said it won't accept a system that doen't cover all the digital giants. That approach could block the deal entirely, and mean the French government keeps its controversial levy on the revenues of digital firms.
"Our position remains the same: all digital giants should be taxed at their fair value," Le Maire said in the newspaper interview. "As long as there is no global deal on minimum and digital tax, we will keep our national tax."
Still, both Le Maire and his German counterpart said the change in stance by the U.S. under Biden makes a deal in the coming months more likely.
"We have good hope to reach a deal this summer," Scholz said. "This will change the world, because tax competition is bad for everyone."