Who will be affected by G7 global tax deal? Which countries have signed it?
Finance leaders from the G7 reached a historic agreement on a global minimum tax rate to prevent companies shifting profits to low-tax offshore havens.
Meeting in London the officials from the seven largest economies broke years of deadlock to find common ground on how to make sure companies pay taxes regardless of where they are based. If implemented, government coffers around the world would see hundreds of billions more and stop a race to the bottom on international tax rates.
The Group of 7 (G7) which includes Britain, Canada, France, Germany, Italy, Japan and the United States reached a compromise on setting up a minimum 15 percent global tax rate on companies wherever they do business discouraging businesses to move their operation offshore. It will also make it harder to use tax havens to push down their tax burden where they are headquartered. An additional tax would make those companies pay taxes to countries based on where their goods or services are sold, even if they don’t have a physical presence in that nation.
Which countries have signed on to the minimum global tax?
The agreement is only the first step in settling up a global minimum tax rate, the G7 countries will have to sell the proposal to the wider international community. Finance ministers from the broader Group of 20 (G20) are meeting in Italy next month where countries like Ireland will be opposed to the new measure. The country would have more to lose than other countries with its 12.5 percent corporate tax rate which has attracted many large tech firms over the past decades and could cause Ireland to lose as much as 20 percent of its corporate tax revenue.
The finance ministers from the G7 will work to bring enough advanced economies on board that other countries will be compelled to follow suit. If they can garner enough support a final deal could be signed in October when the G20 reconvenes. However, implementation would still take time as other tax measures would need to be unwound.
What did the G7 finance ministers agree to?
The deal announced on Saturday, after two days of negotiations and which comes after eight years of fraught talks, tackles the issue of how to tax big technology companies. European countries, as the new tax system is put in place, would end their existing digital taxes that have caused friction with the US which feels those taxes discriminate against US tech giants. The Biden administration has threatened to impose $2.1 billion in tariffs against six nations in retaliation for their digital taxes but will hold off to see how negotiations progress.
The deal could potentially force technology giants like Amazon, Apple, Facebook and Google as well as other big global businesses to pay their fair share of taxes. The current global tax rules go back the 1920s which are out of date to handle how multinationals sell services remotely and attribute much of their profits to intellectual property held in low-tax jurisdictions. This system denies billions in tax revenues to the US and nations around the world.
Nick Clegg, Facebook's vice-president for global affairs commented on the deal via Twitter saying "We want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places."
The agreement would apply a new tax to large businesses with a profit margin of at least 10 percent would be applied to at least 20 percent of profit exceeding that 10 percent margin. There were concerns among the European nations that Amazon which has lower profit margins than most tech companies might escape the new taxes but US Treasury Secretary Janet Yellen said she expected it would be included.