By Eurasia Business News – June 6, 2021

After decades of discussions, the G7 finance ministers agreed that the corporate tax should be levied in countries where corporations make profit by providing their goods or service, at a minimal 15%.

The finance ministers of the Group of Seven (G7) countries met in London. Picture : View on the Big Ben and the House of Commons, London, United Kingdom. Photo credit : Eurasia Business News.

This is a revolution. The finance ministers of the Group of Seven (G7) countries met during two days in London on June 4-5 and agreed that the minimum corporate income tax should be at least 15% and that the taxing rights must be located in countries where the economic activity of multinational companies takes place, rather than in favourable jurisdictions with very low tax rates.

This agreement was described as “historic” by the Chancellor of the Exchequer Rishi Sunak, who chaired the meeting as the host country of the G7.

We have been talking about this for almost a decade. And today, for the first time, we really agreed on practically feasible principles of how these reforms should look, this is a great progress,” said the British Finance Minister.

The United Kingdom, France, Italy Canada, Japan, Germany and the United States, encouraged by the American turnaround on the tax issue since the coming to power of President Joe Biden, want to achieve an ambitious reform in the spirit of the work undertaken within the OECD.

This global corporate tax reform is aimed at large technology companies, often based in the US, which pay low taxes despite huge profits, by domiciling their headquarters in countries where the corporate tax rate is very low, if not zero.

The G7 has agreed on the principles of introducing a minimum corporate tax on large corporations of at least 15%, which will operate on a country-by-country basis, create a more level playing field for British companies and lead to an end to tax evasion,” wrote the British Minister on Twitter.

The 15% rate is certainly less important than the 21% propose by the White House few weeks ago, but it should allow to establish ” fairer rules of the game for British companies ” by fighting against tax havens, according to the British Chancellor of the Exchequer.

The decision was announced on Saturday following a two-day meeting of ministers at the Lancaster House in central London.

As Rishi Sunak noted, the G7 countries believe that the tax on profits of transnational corporations should be levied in those states where they earn by providing their goods or services, and not just based on their place of registration. 

The historic reforms will target the largest companies with at least 10% profit margins, and 20% of any income over 10% will be redistributed and then taxed in the countries in which sales are made”, said the British Chancellor of the Exchequer.

The G7 finance ministers hope that the agreement they have reached on the taxation of transnational corporations will be further supported at the G20 meeting of Economy and Finance Ministers which be held in Venice, Italy, next July. This G20 summit will be the opportunity to clarify and broaden this tax committment.  

We agreed on the importance of improving the agreement, including both of its components, and we expect to reach an agreement in July at a meeting of finance ministers and heads of the Central Banks of the G20 countries,” the communiqué circulated after the meeting said.

After years of discussion, the G7 finance ministers reached a historic agreement to reform the global tax system to adapt it to the global digital age. It is imperative to ensure that the system is fair and the right companies pay the right taxes in the right places, which will bring huge benefits for British taxpayers” said the head of the British Ministry of Finance on Sky News.

Who is the target ?

The joint decision of the Finance Ministers of Great Britain, Germany, Italy, Canada, the USA, France and Japan is mainly aimed at world IT giants such as Facebook, Google, Apple and Amazon. The agreement is designed to create conditions under which technology companies will not withdraw profits from countries where they operate to jurisdictions with more favourable taxation. As experts previously warned, such a decision by the G7 could hit offshore companies, where tax rates have either been near to zero or are about 10%.

Read also : Post-Brexit deal : what future for London’s financial services ?

For the first time, the proposal to establish a global corporate tax at a rate of at least 15% was announced on May 20 by the US Treasury Department, under the impulse of the US President Joe Biden.

At the same time, a number of G7 states, such as Japan and the UK, were in favour of a higher tax rate. Experts agreed that at the first stage it would be preferable to propose to introduce this fee at the minimum acceptable level, which ultimately happened.

The US authorities have put forward a corresponding initiative due to the fact that an increasing number of American IT giants are transferring their profits to jurisdictions with more lenient taxation conditions. The United States Treasury said that now, when the global corporate tax is in practice set near zero, there is a reduction in national corporate taxes, while the US state finances need more tax income to fund the recovery from the Covid-19 crisis. Some consider that tax optimization undermines the ability of the United States and other countries to raise the revenues needed to make critical public investments in healthcare, education and infrastructure.

G7 leaders to meet in Cornwall

The agreement reached at the ministerial meeting should fuel discussions on the financial aspects by the G7 leaders when they meet next week. Great Britain intends to hold a summit in the traditional format in the resort town of Carbis Bay on the Atlantic coast of the Cornwall peninsula on 11-13 June 2021.

In addition to the leaders of the G7 countries, the head of the European Council Charles Michel, the President of the European Commission Ursula von der Leyen and the leaders of Australia, India, South Korea and South Africa have been invited this year, as well as the new General Director of the World Trade Organization Ngozi Okonjo-Iweala, who took office on March 1st.

The G7 is a discussion and economic partnership group of seven democratic and advanced countries, founded in 1975.

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