G7 finance ministers have reached a historic agreement
On Saturday, the United States, the United Kingdom, and other major nations signed a historic agreement to pursue increased worldwide taxation on transnational corporations such as Google, Apple, and Amazon. The Group of seven large advanced economies decided to support a minimum global corporate rate of at least 15% and for firms to pay more tax in the countries, where they sell goods and services in the hopes of generating hundreds of billions of dollars, to help them deal with the consequences of COVID-19.
“After a two-day meeting in London, G7 finance ministers have reached a historic agreement to overhaul the global tax system to make it suitable for the global digital era,” British finance minister Rishi Sunak said.
The “major, unprecedented commitment,” according to the US Treasury Secretary Janet Yellen, will put an end to a “race to the bottom” on global taxation.
The move is believed to be the first step
The deal, which has been in the works for years, also promises to eliminate national digital services tariffs, imposed by the United Kingdom and other European countries, which the US claims, unjustly target the US tech firms.
However, during a G20 meeting in Venice next month, which will include a number of emerging economies, the measures will need to get broader backing.
The ministers also agreed to take steps toward requiring corporations to report their environmental effect in a more uniform manner, so that investors may more easily determine whether or not to support them, this is a top priority for the United Kingdom.
Rich countries have fought for years to come to an agreement on how to obtain more income from giant corporations like Google, Amazon, and Facebook, which commonly record profits in jurisdictions where they pay little or no tax.
A 15 percent global company tax rate might be implemented as a minimum
The administration of the US President Joe Biden injected new life into the stalled discussions by suggesting a minimum global company tax rate of 15%, which is greater than Ireland’s rate, but lower than the G7’s lowest.
Germany and France praised the deal, while French Finance Minister Bruno Le Maire said he would seek for a higher global minimum corporate tax rate than 15%, which he called a “beginning point.”
According to German Finance Minister Olaf Scholz, the pact is “bad news for tax havens all around the world.”
“Companies will no longer be able to avoid paying taxes by booking earnings in nations with the lowest tax rates,” he continued.
Paschal Donohoe, the finance minister of Ireland, whose country stands to lose a lot of money due to its 12.5 percent tax rate, said any global agreement must also consider smaller countries.
Sunak called the agreement a “great reward” for taxpayers, but said it was too early to estimate how much money it will bring in for the UK.
The agreement does not specify which organizations will be subject to the requirements, merely stating that “the largest and most profitable international corporations” will be affected.
European countries have been concerned that a company like Amazon, which has smaller profit margins than most other well-known technology businesses, could slip through the cracks.