The Group of 7 countries has reached an agreement on taxing multinational companies, like big tech, in order to limit their tax avoidance by registering in countries with low corporate tax.
The ministers of finance agreed on measures to make multinational companies pay tax in countries where they do business. The agreement includes working for a global minimum corporate tax rate of 15%.
The idea is that now when the US, UK, France, Germany, Canada, Italy and Japan have agreed on these measures, they will be able to put pressure on the G20 countries that have a meeting in July.
The agreement was described by participants as historic and Rishi Sunak, chancellor of the exchequer and host for the G7 meeting that was hosted by British government, said it was designed to create a level playing field for global companies.
“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,” he said in a statement after the meeting.
The idea is that the rule of paying tax where the business Is made shall apply for companies with at least 10% profit margin.
20% of any profit above that would be reallocated and taxed in the countries where they operate, the G7 communiqué said.
In the second “part of the agreement states commit to a global minimum corporate tax rate of 15% to avoid countries undercutting each other to attract multinational companies.
Bullet points in the communiqué:
- G7 Finance ministers strike seismic agreement on global tax reform that will mean the largest multinational tech giants will pay their fair share of tax in the countries in which they operate.
- Following two-days of talks chaired by Chancellor Rishi Sunak in London, counterparts agree to reforms which will see multinationals paying tax in the countries where they do business;
- As part of landmark deal, finance ministers also agree to the principle of a global minimum rate that ensures multinationals pay tax of at least 15% in each country they operate;
- Nations also agree to follow UK lead in making climate reporting mandatory, and agree measures to crack down on the proceeds of environmental crimes.
FACEBOOK AND GOOGLE
“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, Facebook VP Nick Clegg tweeted.
“We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places.”
Google in a statement said: “We strongly support the work being done to update international tax rules. We hope countries continue to work together to ensure a balanced and durable agreement will be finalized soon,”