Finance ministers from the Group of Seven industrialized nations agreed Saturday on a global minimum corporate tax rate of at least 15 percent to keep multinationals from shifting profits overseas, paving the way for a more inclusive consensus involving over 100 economies.
The G-7 finance chiefs also commit to set new rules to enable governments to impose duties according to where multinational firms make sales, not physical presence, they said in a statement released after wrapping up a two-day meeting in London. About 100 companies -- mainly U.S. firms -- are likely to be affected, Japanese Finance Minister Taro Aso said at a press conference after the talks.
ritish Chancellor of the Exchequer Rishi Sunak, the chair of the G-7 meeting, said in a Twitter video message that the G-7 nations have reached a "historic" agreement to reform the global tax system "so that the right companies pay the right tax in the right places."
The first in-person G-7 finance talks since July 2019 follow years of discussions on how to raise more tax from large multinationals amid criticism global digital giants such as Google LLC and Apple Inc. are not paying their fair share of taxes as they often book profits in low-tax jurisdictions.
U.S. President Joe Biden's administration also gave fresh impetus to global tax talks with the momentum building up following a recent U.S. proposal for a tax of at least 15 percent on corporate profits. Negotiations on global taxation were stalled by his predecessor Donald Trump who sought a "safe-harbor" clause that would allow companies to choose to adopt the current taxation rules even after the new rules are introduced.
U.S. Treasury Secretary Janet Yellen called the agreement "a significant, unprecedented commitment" in a separate statement, saying the universal tax rate of 15 percent "would end the race-to-the-bottom in corporate taxation" and "help the global economy thrive."
U.S. tech giants such as Facebook Inc., Amazon.com Inc. and Google welcomed the G-7 conclusion.
But "this could mean Facebook paying more tax, and in different places," Nick Clegg, Facebook's vice president of global affairs, said in a Twitter post.
The international taxation issues have been discussed at the multinational negotiations taking place under a project led by the Organization for Economic Cooperation and Development, and the Group of 20 major economies, involving nearly 140 countries.
The member countries aim to reach a broad agreement at an in-person gathering of finance chiefs from the G-20 nations, which include China, India and Russia as well as the G-7, to be held in July in Italy, according to sources close to the matter.
There are expectations a consensus by the G-7 economies of Britain, Canada, France, Germany, Italy, Japan and the United States plus the European Union could lead to wider backing at OECD and G-20 talks.
The U.S. proposal of the 15 percent floor was presented during a meeting of an OECD steering group dealing with international tax issues in mid-May, according to the U.S. Treasury Department.
Among the G-7 nations, Japan, France and Germany supported the U.S. proposal. But Britain, which has overseas tax haven territories, and Ireland, which sets its effective corporate tax rate at a relatively low 12.5 percent to attract companies, had yet to back the 15 percent proposal before the meeting, the sources said.
"There were various thoughts (among the G-7 nations) about the minimum tax rate of 15 percent. Some said it should be cut, while some said it should be raised," Aso said at the press conference after the talks. "It took long, but we ended up agreeing on 15 percent."
The other international-tax agreement is about a practice known as digital taxation that members of the international project have been talking about.
"We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20 percent of profit exceeding a 10 percent margin for the largest and most profitable multinational enterprises," the statement said.
The envisaged taxation is expected to help governments restore their finances, which have worsened due to their large-scale fiscal measures in response to the coronavirus pandemic.
On the climate change front, the G-7 ministers agreed to urge major firms to curb greenhouse gas emissions by obligating them to disclose estimates of how global warming will impact their performances to provide "consistent and decision-useful information for market participants."
To ensure a balanced global economic recovery from virus-induced slumps and equitable COVID-19 vaccine access for developing nations, the advanced nations vowed to "take steps to limit the uneven impact of the crisis by targeting support to where it is needed most," and to encourage the pharmaceutical industry to contribute more.
Outcomes of the finance chiefs' talks will be discussed at a face-to-face summit of the G-7 leaders scheduled for three days from June 11 in Cornwall, southwestern Britain.
The following is a gist of the communique issued Saturday by the Group of Seven finance ministers after their two-day meeting in London.
The G-7 finance ministers:
-- commit to a global minimum tax of at least 15 percent on a country by country basis.
-- agree to introduce digital services tax to prevent the largest and most profitable multinational enterprises from avoiding taxes.
-- look forward to reaching an agreement at the July meeting of finance ministers and central bank governors from the Group of 20 major economies.
-- support moving toward mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants.
-- commit to continue to take necessary measures to limit the impact of the COVID-19 crisis.