(CN) — In a big step toward closing loopholes that allow multinational corporations such as Google and Amazon to avoid paying taxes through tax havens and subsidiaries, finance ministers for the Group of Seven proposed over the weekend a global minimum corporate tax rate of at least 15% and a formula for levying taxes on profits where they are made.
The deal, struck during a G-7 finance meeting in London and pushed by U.S. Treasury Secretary Janet Yellen, is part of a broader effort by debt-saddled and crisis-struck governments around the world to find new revenues and fix out-of-date international tax rules that were laid down a century ago.
Though lower than the 21% rate sought by some, the 15% minimum tax rate has been hailed as a historic breakthrough for international tax law and received pledges of support Saturday from the G-7 nations. The finance ministers also endorsed making the world’s biggest companies pay taxes in countries where they do lots of sales but have no physical headquarters.
Governments and policymakers have labored for roughly the past decade over how to tax stateless multinationals capable of making huge profits through online sales, digital data collection and online advertising while also shifting their profits to subsidiaries in tax havens by exploiting mostly legal, but unfair, methods. Nations competing to offer the best tax deals in turn have been locked in something of a race to the bottom.
Rishi Sunak, the British Treasury chief who chaired the meeting, said the G-7 tax deal creates “a fairer tax system fit for the 21st century.”
This is not nearly the end of the road. The proposals will need to be approved by the G-7's individual states and gain global acceptance too. The Group of Seven is made up of the United States, the United Kingdom, France, Germany, Italy, Canada, Japan and the European Union.
In Washington, Republicans could seek to derail the proposals, arguing they are bad for business; and some states in the EU that profit as tax havens, such as Ireland and Cyprus, may try to do the same.
The proposals will be taken up by the finance ministers of the G-20 — another informal group that includes the G-7 states as well as other major economies such as China, Russia, India and Saudi Arabia — at a meeting in Venice in July.
Italy is hosting the G-20 this year with a final summit slated for October in Rome. The U.K. is the host of the G-7 and U.S. President Joe Biden, who's pushing for an increase in corporate taxes in the U.S. to pay for his massive stimulus spending plans, is scheduled to make his first trip to Europe as president when the G-7 meets for three days on the English coast starting Friday.
Simultaneously, the Paris-based Organization for Economic Cooperation and Development, which includes more than 100 nations, has been working on similar global tax proposals for several years.
On Sunday, OECD Secretary-General Mathias Cormann said in a statement that the G-7 proposal was a “landmark step toward the global consensus necessary to reform the international tax system.”
“The combined effect of the globalization and the digitalization of our economies has caused distortions and inequities which can only be effectively addressed through a multilaterally agreed solution,” Cormann said.
The aim is to close tax loopholes that allow multinationals to set up schemes in tax havens such as Ireland, the Cayman Islands, Bermuda and Cyprus, and avoid paying taxes even as they make immense profits around the world. These tax schemes often rely on exploiting gaps and mismatches between national tax rules.