On Saturday, the United States, the United Kingdom, and other wealthy nations reached a landmark agreement to extract more money from multinational corporations like Amazon and Google and reduce their incentive to shift profits to low-tax offshore havens.
After the G7 advanced economies agreed to support a minimum global corporate tax rate of at least 15%, hundreds of billions of dollars could flow into the coffers of governments left cash-strapped by the coronavirus disease (Covid-19) pandemic.
The decision was made at the G7 finance ministers’ meeting in London.
Rishi Sunak, the British Treasury’s chief, posted a Twitter thread explaining the deal’s implications. “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 tweeted.
He also stated that the move will level the playing field for UK businesses while also cracking down on tax evasion.
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.
Other countries would repeal their unilateral digital taxes in favour of a global agreement, according to the agreement reached on Saturday.
Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States form the Group of 7. Representatives from the European Union are also in attendance. Although the forum’s decisions aren’t legally binding, leaders can use it to exert political influence.
