British Chancellor of the Exchequer Rishi Sunak (left to right), US Treasury Secretary Janet Yellen, IMF Managing Director Kristalina Georgieva and Canadian Finance Minister Chrystia Freeland discussing the first day of the Group of Seven Finance Ministers at Lancaster House in London on June 4, 2021.
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LONDON – Finance ministers from the most advanced economies, known as the Group of Seven, have backed a US proposal that asks companies around the world to pay at least 15% tax on their income.
“The G-7 finance ministers reached today, after years of discussions, a historic agreement to reform the global tax system, to adapt it to the global digital age – and most importantly to ensure that ‘It’s right so that the right companies pay the right tax in the right places, ”UK Finance Minister Rishi Sunak said in a video statement on Saturday.
Under the deal, the G-7 countries will support a global minimum corporate tax of at least 15%, Sunak said in a series of tweets. The reforms will affect the world’s largest companies with profit margins of at least 10%.
If finalized, it would represent a significant development in global taxation. G-7 members include Canada, France, Germany, Italy, Japan, United Kingdom, and United States
US Treasury Secretary Janet Yellen, who is in London for the face-to-face meeting, hailed the move as significant and unprecedented.
“This global minimum tax would end the race to the bottom in corporate taxation and ensure fairness for the middle class and working people in the United States and around the world,” she tweeted.
President Joe Biden and his administration initially suggested a minimum global tax rate of 21% in an attempt to end a race to the bottom between different countries to attract international businesses. However, after tough negotiations, a compromise was reached at more than 15%.
A global deal in this area would be good news for cash-strapped countries trying to rebuild their economies after the coronavirus crisis.
But Biden’s idea had not been received with the same level of enthusiasm across the world. The UK, for example, did not immediately express support for the proposal.
US President Joe Biden speaks during a meeting with a bipartisan group of members of Congress.
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The issue can also be controversial within the European Union, where various member states apply different corporate tax rates and thus can attract large companies. Ireland’s tax rate, for example, is 12.5%, while France’s can reach 31%.
Speaking in April, Irish Finance Minister Paschal Donohoe said small nations should be allowed to have lower tax rates as they do not have the same ability to scale as large economies , the British Guardian newspaper reported.
The world’s most powerful economies have disagreed over taxation for some time, especially following plans to further tax digital giants. The United States, under President Donald Trump, has vehemently opposed digital tax initiatives in various countries and threatened to impose trade tariffs.