On 1 July 2021, a historic basic agreement was reached on a two-pillar plan for international tax reform, which was developed under the auspices of the OECD’s Inclusive Framework on base erosion and profit shifting (BEPS). At their meeting on 9–10 July 2021, G20 finance ministers and central bank governors endorsed the outcomes achieved by the Inclusive Framework on BEPS and called for the swift implementation of the new rules. On 8 October 2021, the members of the Inclusive Framework on BEPS agreed on further technical details and on a detailed implementation plan. This agreement was endorsed by the G20 finance ministers and central bank governors on 13 October 2021 and by the heads of state and government at the G20 summit on 30–31 October 2021.
The two-pillar project offers a solution to the tax challenges posed by the digital economy. As of 28 December 2021, 137 countries have signed on to the agreement. This is a milestone for international tax fairness and multilateralism. The two reform pillars cover the reallocation of rights to collect tax from the world’s largest and most profitable corporations (Pillar 1) and a global minimum tax, which is based on a joint proposal put together by Germany and France (Pillar 2).
The reform will help avoid uncoordinated unilateral measures and put an end to harmful tax competition and aggressive tax planning. The implementation plan sets out that the new measures will enter into force in 2023.
At their meeting, the G20 finance ministers and central bank governors noted that the economic recovery continues at a solid pace, especially in places with successful vaccination rollouts. However, the current phase following the immediate crisis is characterised by new challenges that present risks to global economic growth: high levels of divergence in the economic recovery, especially between advanced and emerging economies, further COVID-19 outbreaks in various parts of the world, supply shortages and rising inflation. Against this background, the G20 countries strongly affirmed their intention to continue working together closely on overcoming the crisis and actively shaping the recovery. The progress report on the G20 crisis response action plan shows the huge efforts that the international community has made in connection with the pandemic. For example, more than US$16 billion in fiscal policy assistance has been agreed so far. Germany is a strong advocate for major investments to promote green and digital transformations that will boost long-term growth potential. Since the onset of the crisis, it has been clear that the international response must focus not only on stabilisation, but also on laying the groundwork for a strong, sustainable upswing after the crisis ends. In addition, it is crucial to place a focus on the challenges of the future, especially climate change and digitalisation.
Once again, climate policy played a central role in the talks held by G20 finance ministers and central bank governors in Washington, D.C. Climate change and measures to tackle it also have significant macroeconomic and distributional impacts. The G20 will focus on and analyse these dimensions of climate change even more closely in the future. Germany is setting a good example when it comes to ensuring a climate-friendly and sustainable economic recovery. The communiqué again included a reference to carbon pricing and the related need to provide targeted support for lower-income households, which is something Germany has already implemented. The G20 finance ministers and central bank governors also acknowledged the importance of international climate finance for the benefit of developing and emerging countries, technology transfer, and investment in innovative technologies as factors in reaching climate targets.
Improving the global pandemic response and long-term pandemic preparedness also continue to be top priorities.
The G20 finance ministers and central bank governors welcomed the progress achieved in implementing the Debt Service Suspension Initiative (DSSI) for the world’s poorest countries. The DSSI was adopted in April 2020. Under the DSSI, eligible countries are granted deferrals on interest payments and principal payments. The aim is to give these countries more fiscal leeway to fight the pandemic. It remains important that all creditor countries implement the initiative fully and transparently on a bilateral level. In addition, the G20 finance ministers and central bank governors welcomed the progress made in recent months in implementing the Common Framework for Debt Treatments beyond the DSSI to address debt vulnerabilities in a coordinated manner. They committed to redoubling their efforts in this area to ensure that countries that have requested debt treatment under the framework can receive appropriate support. Furthermore, they stressed the importance of private sector participation in the DSSI in order to ensure comparable treatment of private and public creditors.
Since the beginning of the pandemic, the IMF has provided swift and comprehensive financial assistance to 87 countries, totalling approximately US$117 billion. Moreover, with the general allocation of new Special Drawing Rights (SDRs) totalling US$650 billion in August 2021, the IMF created new reserves and thus more financial leeway. Germany had advocated for this since the beginning of the pandemic. Roughly 42% of the newly allocated reserves will go to emerging and developing countries, which have been heavily impacted by the crisis.
At the meeting in Washington, D.C., the G20 finance ministers and central bank governors discussed how richer countries could use their new SDRs to support poorer countries. They decided to establish the new IMF Resilience and Sustainability Trust (RST) as a way of deploying funds in a targeted and efficient way for the benefit of members. However, many technical obstacles still need to be overcome before the RST can take up its work. Germany is actively involved in these efforts, though it is unable to participate financially itself due to the fact that the SDRs are held in the Bundesbank’s reserves. Instead, Germany makes substantial contributions to financing various programmes in the areas of development, climate and health, most recently in the form of €3 billion for the IMF-administered Poverty Reduction and Growth Trust (PRGT).
The G20 finance ministers and central bank governors reiterated their commitment to ensuring the timely and effective implementation of the “G20 roadmap to enhance cross-border payments”. They welcomed and supported the Financial Stability Board (FSB) report setting out ambitious quantitative global targets in this area. In this connection, they took note of the Progress Report on Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements and reiterated that no so-called “global stablecoins” should commence operation until all relevant legal, regulatory and oversight requirements have been addressed. In this context, the G20 finance ministers welcomed the Committee on Payments and Market Infrastructures (CPMI)-IOSCO consultative report setting out that, where a stablecoin arrangement performs a transfer function and is determined by authorities to be systemically important, the stablecoin arrangement as a whole would be expected to observe all the relevant principles for financial market infrastructures. They also welcomed the second 12-month review on the global implementation of the Financial Action Task Force (FATF) standards on virtual assets and virtual asset service providers.
The G20 finance ministers and central bank governors reiterated their support for the FATF and the nine FATF-style Regional Bodies (FSRBs), while calling on other FATF members, the IMF and the World Bank to similarly increase their financial and/or technical support for FSRBs. They called on countries to act on the FATF’s findings on money laundering risks in connection with environmental crime. In addition, they reaffirmed their support for the ongoing project to review the current FATF recommendations on beneficial ownership transparency with a view to strengthening global beneficial ownership transparency standards.
The G20 finance ministers and central bank governors welcomed the FSB’s report on the lessons learnt from the COVID-19 pandemic from a financial stability perspective and look forward with great interest to the results of the follow-up work. In this context, they particularly highlighted the work on non-bank financial intermediation.