‘Historic’ G7 deal calls for minimum corporate tax

‘Historic’ G7 deal calls for minimum corporate tax

US tech giants a key target as countries agree businesses should pay at least 15%

Olaf Scholz, Germany’s finance minister, speaks to reporters on the final day of the Group of Seven Finance Ministers’ meeting in London on Saturday. (Bloomberg Photo)
Olaf Scholz, Germany’s finance minister, speaks to reporters on the final day of the Group of Seven Finance Ministers’ meeting in London on Saturday. (Bloomberg Photo)

LONDON: Finance ministers from wealthy G7 nations on Saturday pledged to commit to a global minimum corporate tax of at least 15%, rallying behind a US-backed plan.

“We … commit to a global minimum tax of at least 15% on a country by country basis,” said a statement at the conclusion of their London meeting.

The G7 hopes to reach a final agreement at the July gathering of the expanded G20 finance ministers’ group, it added.

“I’m delighted to announce that G7 finance ministers … have reached a historic agreement to reform the global tax system,” said British Chancellor of the Exchequer Rishi Sunak, who chaired the two days of talks held in person after an easing of Covid 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.

Facebook was quick to respond and struck a conciliatory tone.

The social media giant welcomes the progress made on a minimum tax rate and accepts this could mean it 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.

“We want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places.”

The talks in London have prepared the ground for a broader summit of G7 leaders in Cornwall in southwestern England, starting on Friday.

US President Joe Biden is set to attend the summit on his first foreign tour since taking office in January.

‘Right time’ for reform

Momentum has grown behind the US-led plans to limit the ability of multinationals like tech giants to game the tax system to boost profits, especially at a time when economies around the world are reeling from the impact of the coronavirus pandemic.

German finance minister Olaf Scholz told reporters it was the “right time” for a global tax deal given the vast sums spent by governments “to protect citizens, stabilise the economy and save jobs” since last year.

Biden had called for a unified minimum corporate tax rate of 15% in negotiations with the Organisation for Economic Co-operation and Development (OECD) and G20.

French economy minister Bruno Le Maire had told journalists in London that 15% is “a minimum. For us, it’s a starting point”.

Along with its G7 and G20 partners, France wants “a more ambitious level of taxation”, the minister said, with the current pandemic crisis showing that “tax evasion, the race towards the lowest possible level of taxation, is a dead end”.

At the same time, Ireland has expressed “significant reservations” about Biden’s plan. Its 12.5% tax rate is one of the lowest in the world, prompting tech giants such as Facebook and Google to make Ireland the home of their European operations.

Proponents argue that a minimum tax is necessary to stem competition between countries over who can offer multinationals the lowest rate.

They say that a “race to the bottom” saps precious revenues that could go to government priorities like hospitals and schools.

Corporate tax is one of two pillars in efforts for global fiscal reform, the other being a “digital tax” to allow countries to tax the profits of multinationals headquartered overseas.

Britain wants multinationals to pay taxes that reflect their operations, as governments seek to repair finances battered by slashed tax receipts plus vast spending and borrowing during the pandemic.

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