The Group of Seven wealthy democracies agreed Saturday to support a global minimum corporate tax of at least 15% in order to deter multinational companies from avoiding taxes by stashing profits in low-rate countries.
G-7 finance ministers meeting in London also endorsed proposals to make the world’s biggest companies — including U.S.-based tech giants — pay taxes in countries where they have lots of sales but no physical headquarters.
U.S. Treasury Secretary Janet Yellen, who led U.S. negotiations at the London meetings, said the agreement “provides tremendous momentum” towards 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.”
In a press conference on Saturday from London, she said members of the G-7 agreed “the post-pandemic world must be fairer, especially with regard to global taxation.”
“I think we will end up with a tax system that is much fairer,” Yellen said.
She said details remain that “need to be worked out” and they will be negotiated in upcoming meetings of the larger Group of 20. She said she believes they will reach a preliminary agreement with the larger group in July with details to be finalized in the fall.
International discussions on the tax issue gained momentum after U.S. President Joe Biden backed the idea of a global minimum of at least 15% — and possibly higher — on corporate profits.
The tax proposals endorsed Saturday have two main parts. The first part lets countries tax a share of the profits earned by companies that have no physical presence but have substantial sales, for instance through selling digital advertising.
The G-7 statement echoes a U.S. proposal to simply let countries tax part of the earnings of the largest and most profitable companies — digital or not — if they are doing business within their borders. It also supported awarding countries the right to tax 20% or more of profit exceeding a 10% profit margin.
Part of the agreement is that countries such as France that have imposed digital services taxes would remove them in favor of the global agreement. The U.S. considers those unilateral digital taxes to be unfair trade measures that single out big U.S. tech companies such as Google, Amazon and Facebook.
The other main part of the proposal is for countries to tax their home companies’ overseas profits at a rate of at least 15%. That would deter the practice of using accounting schemes to shift profits to a few very low-tax countries.
Nations have been grappling with the question of how to deter companies from legally avoiding paying taxes by resorting to tax havens — typically small countries that entice companies with low or zero taxes, even though the firms do little actual business there.
According to an analysis by the Institute on Taxation and Economic Policy, a left-leaning nonprofit tax policy organization, at least 55 of the largest corporations paid no federal corporate income in the most recent fiscal year.
Nick Clegg, the vice president for global affairs at Facebook, said on Twitter Saturday that the company welcomed the progress made at the G-7.
“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 said.
Britain’s Treasury chief Rishi Sunak, the meeting’s host, said the international taxation deal would “reform the global tax system to make it fit for the global digital age and crucially to make sure that it’s fair, so that the right companies pay the right tax in the right places.”
France cheered Saturday’s agreement and claimed credit for acting as its catalyst.
“We made it! After 4 years of battle, a historic accord was reached with G7 member states,” French Finance Minister Bruno Le Maire tweeted. “France can be proud!”
The meeting of finance ministers came ahead of an annual summit of G-7 leaders scheduled for June 11-13 in Cornwall, England.
The endorsement from the G-7 could help build momentum for a deal in wider talks among more than 140 countries being held in Paris as well as a Group of 20 finance ministers meeting in Venice in July.
Contributing: Grace Segers and Sarah Ewall-Wice