The group of affluent democracies of the Group of Seven agreed on Saturday to support a minimum global corporate tax of at least 15% to deter multinational corporations from avoiding taxes by investing profits in low-interest countries.
The G-7 finance ministers’ meeting in London also supported proposals to get the world’s largest corporations – including US tech giants – to pay taxes in countries where they have high sales but no physical headquarters.
UK CFO Rishi Sunak, the host, said the deal would “reform the global tax system to make it fit for the global digital age, and most importantly, to ensure that it is fair to allow the right companies to pay the right taxes to the right.” Digits pay “. . “
US Treasury Secretary Janet Yellen said the deal “provides a tremendous boost” to the achievement of a global deal that would “end the race to the bottom in corporate taxation and ensure fairness for the middle class and working population in the US and around the world “. . “
Nations have been grappling with the question of how to prevent companies from legally evading taxes by transferring their profits to subsidiaries in tax havens – typically small countries that lure companies with low or no taxes, though – for accounting and legal purposes the firms do little real business there. International tax discussions gained momentum after US President Joe Biden endorsed the idea of a global minimum of at least 15% – and possibly more – on corporate profits.
The Treasury Ministers’ meeting preceded an annual G7 Heads of State and Government Summit, scheduled for June 11-13 in Cornwall, England. G7 approval could help build the momentum for an agreement in broader talks between more than 135 countries in Paris and a group of 20 finance ministers to meet in Venice in July.
Manal Corwin, tax director at professional services firm KPMG and a former Treasury Department official, said the meeting clarified where key countries stand on several key issues, including the 15% minimum.
“It was really very important to signal that there is consensus on some of the key features of what is being discussed around the world so that they have the momentum to move into the next phase with the G-20,” she said.
The tax proposals adopted on Saturday consist of two main parts. In the first part, countries can tax part of the profits made by companies that do not have a physical presence but generate significant revenue, for example through the sale of digital advertising.
France had opened a debate on the issue by levying its own digital services tax on revenues it allegedly received in France from companies such as Google, Amazon and Facebook. Other countries have followed suit. The US views these national taxes as unfair trade measures that inappropriately weed out American companies.
Part of Saturday’s agreement is for other countries to lift their unilateral digital taxes in favor of a global deal.
Facebook vice president of global affairs Nick Clegg said the deal is a big step in increasing business security and increasing public confidence in the global tax system, but admitted it could cost the company.
“We want the international tax reform process to be successful, and we recognize that this could lead to Facebook paying more taxes in other places,” Clegg said on Twitter.
The G-7 Declaration reflects a US proposal to have countries tax a portion of the revenues of “the largest and most profitable multinationals – digital or not – when they do business within their borders. or more local profits exceeding a profit margin of 10%
Yellen, who was asked if she had given assurances to her European counterparts that large US tech firms would be involved, said the deal would “include large profitable firms, and I believe these firms will be eligible by almost any definition.”
The other main part of the proposal is that countries tax the foreign profits of their home companies at a rate of at least 15%. This would prevent the practice of using accounting systems to shift profits to a few countries with very low taxes, since untaxed profits abroad would be subject to an additional tax in the country of the main establishment.
Domestically, Biden is proposing a US tax rate of 21% on corporate foreign profits, a 10.5% to 13.125% increase enacted under former President Donald Trump. Even if the US interest rate were above the global minimum, the difference would be small enough to remove most of the room for tax avoidance. Biden’s proposal requires the approval of Congress.
KPMG’s Corwin said the final statement was silent on several key points, including exactly which of the “largest and most profitable” multinationals would be covered by the proposal and how companies would be protected from double billing if countries disagree on who has the right on that she has to tax. These complexities feed the G20 talks and the ongoing talks of the Organization for Economic Co-operation and Development in Paris.
“The devil is in the details,” said Corwin.
The Group of Seven is an informal forum between Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. Representatives of the European Union also take part. Its decisions are not legally binding, but leaders can use the forum to exert political influence.
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McHugh contributed from Frankfurt.