Finance ministers from the G7 countries, including Canada's Finance Minister Chrystia Freeland, centre in white, pose for a group photo during the G7 finance ministers meeting at Lancaster House in London on June 5, 2021.HENRY NICHOLLS/Reuters
The United States, Britain, Canada and other leading nations reached a landmark deal on Saturday to pursue higher global taxation on multinational businesses such as Google, Facebook, Apple and Amazon.
In a move that could raise hundreds of billions of dollars to help governments cope with the aftermath of COVID-19, the Group of Seven (G7) large advanced economies agreed to back a minimum global corporate tax rate of at least 15 per cent. Companies will also have to pay more tax in the countries where they make sales.
“G7 finance ministers have reached a historic agreement to reform the global tax system to make it fit for the global digital age,” British Chancellor of the Exchequer Rishi Sunak said after chairing a two-day meeting in London.
The meeting, hosted at an ornate 19th-century mansion near Buckingham Palace in central London, was the first time finance ministers have met face-to-face since the start of the pandemic.
U.S. Treasury Secretary Janet Yellen said the “significant, unprecedented commitment” would end what she called a race to the bottom on global taxation.
Finance Minister Chrystia Freeland said Saturday taxing multinational firms would allow Canadian businesses to compete on “a fair and level playing field” in the global economy.
“Multinational corporations need to pay their fair share of taxes and the G7 has just outlined a path to make this possible,” she tweeted from London.
German finance minister Olaf Scholz said the deal was “bad news for tax havens around the world”, adding: “Companies will no longer be in a position to dodge their tax obligations by booking their profits in the lowest-tax countries.”
Rich nations have struggled for years to agree to a way to raise more revenue from large multinationals, which can pay little tax on the billions of dollars of sales they make in countries around the world, draining public finances.
The framework could force some of the world’s biggest companies to pay taxes in countries where they have high sales but no physical headquarters.
In the absence of an agreement among the world’s leading industrialized nations, Freeland had indicated Canada was prepared to unilaterally impose its own digital services tax starting Jan. 1, 2022.
U.S. President Joe Biden’s administration gave the stalled talks fresh impetus, however, by proposing a minimum global corporation tax rate of 15 per cent to deter companies from booking profits elsewhere.
The 15 per cent is above the level in countries such as Ireland but below the lowest level in the G7. Amazon and Google welcomed the agreement and Facebook said it would likely pay more tax.
Nick Clegg, Facebook’s vice-president for global affairs and a former British deputy prime minister, said: “We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places.”
But some campaign groups condemned what they saw as a lack of ambition.
The deal, years in the making, also promises to end national digital services taxes levied by Britain and other European countries which the United States said unfairly targeted U.S. technology giants.
But the measures will first need to find broader support at a meeting of the G20 – which includes a number of emerging economies – due to take place next month in Venice.
“It’s complicated and this is a first step,” Sunak said.
Exactly which big companies will be covered, and how governments divide up tax revenue, is still to be agreed.
Germany, France and Italy welcomed the tax agreement, although French Finance Minister Bruno Le Maire said he would fight for a higher global minimum corporate tax rate than 15 per cent, which he described as a “starting point”.
Campaign groups such as international development charity Oxfam also said the minimum tax rate should be much higher. “They are setting the bar so low that companies can just step over it,” Oxfam’s head of inequality policy, Max Lawson, said.
But Irish finance minister Paschal Donohoe, whose country is potentially affected because of its 12.5 per cent tax rate, said any global deal also needed to take account of smaller nations.
Sunak said the deal was a “huge prize” for taxpayers, but it was too soon to know how much money it would raise for Britain.
The agreement does not make clear exactly which businesses will be covered by the rules, referring only to “the largest and most profitable multinational enterprises”.
Some European countries have feared that a business such as Amazon could slip through the net as it reports lower profit margins than most other well-known technology companies.
Ministers also agreed to move towards making companies declare their environmental impact in a more standard way so investors can decided more easily whether to fund them, a key goal for Britain.
The G7 includes the United States, Japan, Germany, Britain, France, Italy and Canada.
Below are the details of the agreement, according to the wording of a final communiqué seen by Reuters:
ON A MINIMUM CORPORATE TAX
We also commit to a global minimum tax of at least 15 per cent on a country by country basis. We agree on the importance of progressing agreement in parallel on both Pillars and look forward to reaching an agreement at the July meeting of G20 Finance Ministers and Central Bank Governors.
We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20 per cent of profit exceeding a 10 per cent margin for the largest and most profitable multinational enterprises.
We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies.
ON CLIMATE CHANGE
We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants and that are based on the Task Force on Climate-related Financial Disclosures (TCFD) framework, in line with domestic regulatory frameworks.
We … agree on the need for a baseline global reporting standard for sustainability, which jurisdictions can further supplement.
We commit to a multi-year effort to deliver the significant structural change needed to meet our net zero commitments and environment objectives in a way that is positive for jobs, growth, competitiveness and fairness.
We commit to properly embed climate change and biodiversity loss considerations into economic and financial decision-making, including addressing the macroeconomic impacts and the optimal use of the range of policy levers to price carbon.
ON THE GLOBAL ECONOMIC RECOVERY
We commit to sustain policy support as long as necessary and invest to promote growth, create high-quality jobs and address climate change and inequalities.
As our economies re-open, we will continue to take steps to limit the uneven impact of the crisis by targeting support to where it is needed most.
Once the recovery is firmly established, we need to ensure the long-term sustainability of public finances to enable us to respond to future crises and address longer-term structural challenges, including for the benefit of future generations.
ON STABLECOIN
We reiterate that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory, and oversight requirements through appropriate design and by adhering to applicable standards.
With reports from The Canadian Press and The Associated Press