Tax experts welcomed today’s agreement among G7 finance ministers for a global minimum corporate tax rate, but warned that the apparent breakthrough left plenty of work to do.
In the talks in London, which are being chaired by Rishi Sunak, the chancellor, G7 finance chiefs agreed to a global minimum corporate tax rate of 15 per cent.
Sunak described it as a “historic agreement” that would see “the largest multinational tech giants paying their fair share of tax in the UK”. “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,” he added. The global minimum would work on a country-by-country basis and ensure a level playing field for UK companies.
“I’ve made securing an agreement on digital tax a key priority of mine for the G7 presidency,” Sunak said.
It follows years of criticism levelled at American tech giants such as Google and Facebook for not paying enough tax in countries where they make billions of dollars in sales, and instead routing them through lower-tax jurisdictions.
The deal, described by the German finance minister, Olaf Scholz, as one that would “change the world”, would help countries to reduce pandemic budget deficits. He told the BBC it would tackle the “race to the bottom we see with taxes today”. He added: “This will help the countries we live in to finance their tasks, and — especially after the Covid crisis and all the money we spent — to defend the health of the people and to defend the economy.”
A global minimum tax rate, aimed at the top 100 companies around the world, particularly Silicon Valley tech giants, has been debated for years but was given new impetus by the election of Joe Biden as US president.
“This is more optimistic than before,” said John Cullinane, public policy director at the Chartered Institute of Taxation. He said the G7 deal was a big step but it did not mean that the world had reached the end of the road on agreeing a global minimum tax rate. That depended on negotiations in the OECD and the larger G20 group of nations, which includes China and India.
“The G7 finance ministers’ progress on a global minimum corporate tax rate has generated a lot of interest, but much will depend on what happens at the G20 meeting in July and beyond,” said Vicky Pryce, chief economic adviser at the Centre for Economics and Business Research.
As envisaged by the G7, some 100 multinationals, with profits of more than $2 billion, would be subject to the global minimum.
Some finance ministers see the initial agreement on a 15 per cent minimum rate — lower than the existing corporation tax rates in any G7 country — as a starting point, which could be negotiated higher over time.
The first such negotiation could come at the next G20 summit in Venice. Sunak confirmed that the detail would be hammered out at the G20 meeting.
In the second part of the G7 agreement, the biggest global companies with profit margins of at least 10 per cent will also be subject to a new tax regime, with 20 per cent of profits above the 10 per cent margin reallocated and subject to tax in the countries where they make sales.
The 15 per cent minimum rate could spell trouble for Ireland, which has relied on its 12.5 per cent corporation tax rate to attract multinational giants.
Paschal Donohoe, the Irish finance minister, who attended yesterday’s G7 talks in his capacity as president of the Eurogroup, has been warned by the International Monetary Fund that a global minimum tax rate could wipe out half its corporate tax base. The global minimum, if adopted, will be a test of Ireland’s appeal to big firms.