G7 back steps to deter tax dodging by multinational firms

Alonzo Simpson
June 6, 2021

Finance ministers of the Group of Seven - the UK, US, Canada, France, Germany, Italy and Japan - as well as the European Union agreed to the principle of a global minimum rate that ensures multinationals pay tax of at least 15 per cent in each country they operate in. In a bid to try and stop the shifting of funds to tax-efficient countries, the G7 has agreed to take away some of the benefit gained from the revenue movements.

Treasury officials said the decision to agree to a 15% minimum corporation tax would create a "more level playing field for United Kingdom firms and cracking down on tax avoidance".

Changes will also be made to ensure major corporations, especially those with a strong online presence, will pay taxes in the countries where they operate and not only where they have headquarters.

Ms Yellen said European countries would scrap existing digital services taxes which the United States says discriminate against U.S. businesses as the new global rules go into effect.

Agreement on a 15% baseline is likely to cause tensions with Dublin, with Ireland so far resistant to raising its corporation tax rate above 12.5%.

Current global tax rules date back to the 1920s and struggle with multinational tech giants that sell services remotely and attribute much of their profits to intellectual property held in low-tax jurisdictions.

The G7 also committed to making companies carry out mandatory reporting regarding the climate impact of their investments.

"After years of discussion, G7 finance ministers have reached a historic agreement to reform the global tax system to make it fit for the global digital age", British Chancellor of the Exchequer Rishi Sunak told reporters at the meeting. That's a victory for the US, which opposed France's bid for explicitly targeting tech giants like Amazon.com Inc. and Facebook Inc.

The meeting of finance ministers came ahead of an annual summit of G-7 leaders scheduled for June 11-13 in Cornwall, England.

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The framework could force some of the world's biggest companies, including USA -based tech giants like Facebook, Google, Apple and Microsoft, to pay taxes in countries where they have high sales but no physical headquarters.

Official data showed Ireland's economy grew nearly eight percent in the first quarter, as multinational firms' revenues helped it continue to buck neighbours' pandemic downturns.

"For us, it's a starting point".

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.

In a letter on Friday, the finance ministers of France, Italy and Germany said they would work together to define "a common position on a new global tax system" at the meetings. "Today's agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system", Clegg said.

German Finance Minister Olaf Scholz called the deal "very good news for justice and fiscal solidarity".

"That global minimum tax 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", she tweeted after the meeting.

The Government has said it is ready to go it alone with a local digital tax if the G7 deal falls over.

The landmark move comes as governments seek to fix finances battered during the pandemic by slashed tax receipts plus vast spending and borrowing.

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