G7 leaders ink landmark global tech tax agreement
The G7 has agreed a landmark deal to crack down on tax avoidance by major tech companies.
The group of rich nations today committed to a global minimum corporation tax rate of at least 15 per cent on a country by country basis.
“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,” a communique from G7 finance ministers seen by Reuters said.
“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.”
Chancellor Rishi Sunak hailed an “historic” agreement, adding that it would create a level playing field for companies around the world.
“These seismic tax reforms are something the UK has been pushing for and a huge prize for the British taxpayer — creating a fairer tax system fit for the 21st century.
“This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.”
Sunak added that the need for national digital services taxes would be removed once the global deal was in place.
Rain Newton-Smith, CBI chief economist, said: “Finding agreement on international tax at the G7 is no mean feat and will light the touchpaper for the wider multilateral process at the OECD.
“Consensus on corporation tax means that a real sense of momentum can now build ahead of the G20 later in the year, helping to pave the way forward for an international tax system that is simpler, more sustainable and easier to comply with.”
Russ Shaw, founder of Tech London Advocates & Global Tech Advocates, said: “A deal like this will potentially capture billions of pounds in tax revenue for the UK government, which is urgently needed in light of all the spending that has been required to deal with the pandemic.
“A global digital tax consensus will revamp the global tech ecosystem for the better, financially and ethically, and leaders across the tech community hope that the tax receipts will be directed towards digital skills training and upskilling in order to ensure the UK workforce is better equipped for a rapidly growing digital economy.”
Tech titans respond
Facebook vice president of global affairs Nick Clegg welcomed the agreement and acknowledged it could mean the social media network pays more tax.
“Facebook has long called for reform of the global tax rules and we welcome the important progress made at the G7,” he said on Twitter. “Today’s agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system.
“We want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places.”
An Amazon spokesperson said: “We believe an OECD-led process that creates a multilateral solution will help bring stability to the international tax system. The agreement by the G7 marks a welcome step forward in the effort to achieve this goal.
“We hope to see discussions continue to advance with the broader G20 and Inclusive Framework alliance.”
A spokesperson for Google added: “We strongly support the work being done to update international tax rules. We hope countries continue to work together to ensure a balanced and durable agreement will be finalised soon.”
Two-pillar system
During the meeting in London, finance ministers agreed a two-pillar system to tackle the issue of tax avoidance in an increasingly globalised and digital economy.
Under the first pillar, the largest and most profitable multinational firms will be required to pay tax in the countries where they operate, not just where they are headquartered.
The rules will apply to global companies with at least a 10 per cent profit margin — and will see 20 per cent of any profit above this 10 per cent margin reallocated and then subjected to tax in the countries in which they operate.
Under the second pillar, the ministers agreed to a global minimum corporation tax of 15 per cent, operated on a country by country basis.
The agreement will now be discussed in further detail at the G20 financial ministers and central bank governors meeting next month.
Climate pledge
Further agreements made today include a pledge to accelerate action on environmental issues by committing to properly embed climate change and biodiversity loss considerations into economic and financial decision-making.
They also welcomed the launch of a new taskforce on nature-related financial disclosures and agreed to crack down on the proceeds of environmental crimes by introducing and strengthening central company beneficial ownership registries.
They also committed to continue supporting the poorest and most vulnerable countries as they address health and economic challenges associated with Covid.