Corporate Tax

G7 reaches “historic” deal on international corporate earnings tax

The deal, which aims to end tax evasion by tech giants, will bring the global tax system into the 21st century, said UK finance chief Rishi Sunak

Treasury ministers of the affluent G7 countries committed yesterday to commit to a minimum global corporate tax of at least 15 percent and thus to stand behind a US-backed plan.

“We … commit to a worldwide minimum tax of at least 15 percent on a country basis,” said a statement at the end of their London meeting.

The G7 hopes to reach a final deal at the meeting of the enlarged G20 finance ministers’ group next month, she added.

“I am pleased to announce that the G7 finance ministers … have reached an historic agreement on reforming the global tax system,” said UK Chancellor of the Exchequer Rishi Sunak, who personally chaired the two-day talks after easing COVID-19- Restrictions.

Finance ministers from Canada, France, Germany, Italy, Japan and the USA attended it.

Sunak said the G7 has agreed to “make the global tax system fit for the global digital age and, most importantly, ensure that it is fair for the right companies to pay the right taxes in the right places”.

He thanked his counterparts for “reaching an agreement of historic importance that will finally bring our global tax system into the 21st century”.

The groundbreaking move aims to encourage multinational corporations – tech giants in particular – to pay more into the state coffers, which have been badly hit during the COVID-19 pandemic.

The talks have paved the way for a wider G7 Summit in Cornwall, England, starting Friday.

US President Joe Biden will attend the summit next week on his first trip abroad since taking office in January.

The momentum has grown behind US-led plans to limit the ability of multinational corporations like tech giants to use the tax system to increase profits, especially at a time when economies around the world are hit by the effects of the pandemic.

Federal Finance Minister Olaf Scholz told reporters on Friday that it was the “right time” for a global tax agreement in view of the enormous sums that governments had spent “to protect citizens, stabilize the economy and save jobs” since last year.

In negotiations with the Organization for Economic Cooperation and Development (OECD) and the G20, Biden called for a uniform minimum tax rate of 15 percent.

The French Economy and Finance Minister Bruno Le Maire had told journalists in London that 15 percent was “a minimum. For us it is a starting point. ”

Together with its G7 and G20 partners, France wants “a more ambitious tax level,” he said, with the pandemic showing that “tax evasion, the race to keep tax levels as low as possible, is a dead end”.

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

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

They say a “race to the bottom” robs valuable revenue that could flow to government priorities like hospitals and schools.

Corporate tax is one of two pillars in the global tax reform effort; the other is a “digital tax” that allows countries to tax the profits of multinational corporations based abroad.

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