Finance ministers from the Group of Seven (G7) rich nations reached a landmark accord on Saturday backing the creation of a global minimum corporate tax rate of at least 15 percent in an effort to close cross-border tax loopholes used by some corporations.
“We … commit to a global minimum tax of at least 15 percent on a country by country basis,” the G7 said in a statement at the conclusion of their London meeting.
Major economies are aiming to discourage multinationals from shifting profits – and tax revenues – to low-tax countries regardless of where their sales are made.
Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.
The G7 accord feeds into a much broader, existing effort. The Organization for Economic Cooperation and Development has been coordinating tax negotiations among 140 countries for years on rules for taxing cross-border digital services and curbing tax-base erosion, including a global corporate minimum tax.
The G7 hopes to reach a final agreement at the July gathering of the expanded G20 finance ministers group, it added. If a broad consensus is reached, it will be extremely hard for any low-tax country to try and block an agreement.
“I’m delighted to announce that G7 finance ministers … have reached a historic agreement to reform the global tax system,” said British finance minister Rishi Sunak, who chaired the two days of talks held in person after an easing of COVID-19 restrictions.
It was attended by counterparts from Canada, France, Germany, Italy, Japan and the United States.
Sunak said the G7 had agreed to make the global tax system “fit for the global digital age and crucially to make sure that it’s fair so that the right companies pay the right tax in the right places”.
He thanked his counterparts for striking “a deal of historic significance that finally brings our global tax system into the 21st century”.
The landmark move is aimed at getting multinationals – especially tech giants – to pay more into government coffers, which have been severely hit during the pandemic.
The talks have prepared the ground for a broader summit of G7 leaders in Cornwall, southwest England, starting Friday.
US President Joe Biden is set to attend next week’s summit on his first foreign tour since taking office in January, while later on Saturday US Treasury Secretary Janet Yellen will hold a press conference following the G7 meeting.
Yellen said Saturday’s agreement “provides tremendous momentum” towards reaching a global deal that “would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the US and around the world”.
France hailed the agreement and claimed credit for acting as its catalyst.
“We made it! After 4 years of battle, a historic accord was reached with G7 member states,” French Finance Minister Bruno Le Maire tweeted. “France can be proud!”
Facebook welcomed the agreement, even though it could mean the social network pays more tax and in different places, its head of global affairs Nick Clegg said on Saturday.
“Facebook has long called for reform of the global tax rules and we welcome the important progress made at the G7,” Clegg said on Twitter. “Today’s agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system.”
But the campaign group Oxfam slammed the deal as inadequate.
“It’s absurd for the G7 to claim it is ‘overhauling a broken global tax system’ by setting up a global minimum corporate tax rate that is similar to the soft rates charged by tax havens like Ireland, Switzerland and Singapore. They are setting the bar so low that companies can just step over it,” Oxfam said.
“Stopping the explosion in inequality caused by COVID-19 and tackling the climate crisis will be impossible if corporations continue to pay virtually no tax …. This is not a fair deal.”