The United States, Britain and other large, rich nations reached a landmark deal on Saturday to squeeze more money out of multinational companies such as Amazon and Google and reduce their incentive to shift profits to low-tax offshore havens.
Hundreds of billions of dollars could flow into the coffers of governments left cash-strapped by the coronavirus disease (Covid-19) pandemic after the G7 advanced economies agreed to back a minimum global corporate tax rate of at least 15%.
The decision was taken at the meeting of G7 finance ministers in London.
British Treasury chief Rishi Sunak posted a Twitter thread where he explained what the deal means. “Under the principles of the landmark reforms, the largest global firms with profit margins of at least 10% will be in scope – with 20% of any profit above the 10% margin reallocated and then subjected to tax in the countries where they make sales,” he said in one of the tweets.
He also said that the move will create a more level-playing field for UK firms and cracking down on tax avoidance.
US Treasury Secretary Janet Yellen said the agreement “provides tremendous momentum” for 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 U.S. and around the world.”
The meeting of finance ministers came ahead of an annual summit of G7 leaders scheduled for June 11-13 in Cornwall, England.
“Signaling that there is consensus around some of the key features of what’s being discussed globally was really, really important so they have the momentum to go to the next phase of this with the G-20,” said Manal Corwin, a tax principal at professional services firm KPMG and a former Treasury Department official.
Part of the agreement Saturday is that other countries would repeal their unilateral digital taxes in favour of a global agreement.
The Group of 7 is an informal forum among Canada, France, Germany, Italy, Japan, the UK and the United States. European Union representatives also attend. Its decisions are not legally binding, but leaders can use the forum to exert political influence.