When the G7 played fiscal tug-of-war (and the US won, as always)
It seems that the G7, that exclusive club of economies that believe they own the world, has just bowed its knees to the North American giant. Yes, friends, in a twist that no one saw coming (lie, we all saw it coming), American companies are saved from paying the global minimum tax. Surprised? Neither do we.
Trump vs. Biden: the fiscal battle that no one asked for
It turns out that the Donald Trump government had a Machiavellian (or simply desperate) plan to sabotage the tax agreement that Joe Biden signed with 140 countries in 2021. The strategy? Increase taxes on companies and non-residents in the US, because nothing says “America First” like a good old international economic sabotage. But, surprise, the G7 decided that it was better not to play with fire and gave the Yankee corporations a free pass. Thank you, capitalism.
According to Bloomberg, US officials managed to eliminate that part of Trump’s plan, because apparently, even in fiscal policy, what matters is not making waves (or not making them too big). The official statement, issued by Canada (which this year chairs the G7), sounds so diplomatic that it is almost tender: it talks about “concerns”, “constructive dialogue” and “fiscal sovereignty”. Translation: “We don’t want problems, gentlemen, here is your exemption.”.
The funniest thing (or saddest, depending on your level of cynicism) is that US Treasury Secretary Scott Bessent came forward with a “side-by-side” proposal (yes, in quotes, because it sounds like those couple agreements that end in divorce). Basically, US companies will not have to follow the income inclusion rules (IIR) or the undertaxed profits rules (UTPR). Because? Because “they already pay taxes at home”. Of course, as if that had been a problem before.
United Kingdom: the complaining ally
Meanwhile, the ever-dramatic British government admitted that UK businesses were “very concerned” about the issue. The Minister of the Treasury, Rachel Reeves, even met with the US Secretary of the Treasury to tell him, in good British: “Hey, this is not very fair play”. But in the end, like in any good Hollywood movie, the US got its way.
The G7, in an attempt to sound relevant, declared that eliminating Section 899 (that pesky part of Trump’s plan) was “crucial to a stable environment.” In other words, “if we don’t give in, they will ruin our mood”. So here we are, with an international tax system as stable as Jenga in an earthquake, but with American corporations happy and not paying extra.
Moral: If you want to win at the global tax game, make sure you are the largest economy in the world. The rest, let them settle for crumbs.
Are you surprised by this outcome? Share this gem of tax diplomacy and continue exploring how the powerful play by the rules… or ignore them. #JustCapitalismThings
