The Group of Seven (G7) agreed on Saturday to impose a global minimum corporate tax rate of at least 15% on large multinational corporations, such as Facebook, Google and Amazon.
The decision was made by the G7, which is made up of finance ministers from the world’s seven richest countries, in an attempt to close a cross-border tax loophole commonly used by multinational businesses.
Canada, France, Germany, Italy, Japan, the UK and the US are all members of the G7.
Rishi Sunak, Britain’s Finance Minister, praised the deal, stating:
“G7 finance ministers have reached a historic agreement to reform the global tax system to make it fit for the global digital age.”
G7 tax agreement aimed at closing loophole
Imposing a global tax rate would prevent corporations from shifting revenues and profits to countries with lower tax rates, even if they had not conducted business in those low-tax countries, to avoid paying up.
Sunak stressed this point on Saturday, arguing that the deal is “fair” as it ensures “that the right companies pay the right tax in the right places.”
German Finance Minister Olaf Scholz warned big companies that the G7 tax deal was “bad news for tax havens around the world”.
“Companies will no longer be in a position to dodge their tax obligations by booking their profits in the lowest-tax countries,” Scholz stated.
Additionally, the G7’s tax agreement, which US Treasury Secretary Janet Yellen called “significant” and “unprecedented,” would provide an economic boost to countries struggling in the wake of the pandemic, as it could bring in billions of dollars each year.
Yellen stated Saturday that the G7’S tax deal “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.”
The deal also will also put an end to digital taxes that a number of European nations have imposed on tech giants. The US argues that these taxes unfairly target companies based in the country.
French FM: Global tax rate of 15% a “starting point”
French Finance Minister Bruno Le Maire argued that while he was pleased with the imposition of a global tax rate, he would fight for a higher rate than 15%, which he called a “starting point.”
Although the landmark tax deal was reached during a 2-day meeting in London, the agreement was part of a plan that was years in the making.
Before any taxes are imposed, however, the deal will have to be agreed upon again in one month, when the G20 summit will take place in Venice.
Many large multinational corporations, like Facebook, have praised the deal, although it means that they will have to pay significantly higher taxes.
Nick Clegg, head of global affairs at Facebook, lauded the agreement.
“Facebook has long called for reform of the global tax rules and we welcome the important progress made at the G7. Today’s agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system,” Clegg wrote on Twitter.