The Group of Seven (G7) affluent nations is working to overcome longstanding differences on Saturday and reach a groundbreaking agreement aimed at closing the gap on large companies that they argue do not pay sufficient taxes. The proposed accord, potentially forming the basis of a global pact next month, seeks to put an end to the decades-long “race to the bottom,” where countries competed to attract corporate giants with extremely low tax rates and exemptions.
This competition has resulted in significant losses for their public funds, a deficit that now requires urgent recovery to cover the substantial costs of supporting economies affected by the coronavirus crisis. The G7 finance ministers, meeting face-to-face for the first time since the pandemic’s onset, engaged in “productive” talks according to Britain’s finance ministry. A formal statement is expected early afternoon.
The French and German finance ministers expressed optimism for a deal after the initial talks on Friday. French Finance Minister Bruno Le Maire stated, “We are just one millimeter away from a historic agreement.” Rishi Sunak, the British finance minister leading the discussions, also advocates for large companies to disclose their environmental impact consistently. The G7 is likely to commit to avoiding an early withdrawal of COVID-19 stimulus measures.
Rich nations have struggled for years to agree on how to generate more revenue from large multinational corporations like Google, Amazon, and Facebook, which often report profits in jurisdictions where they pay minimal or no tax. The U.S. administration under President Joe Biden has injected fresh momentum into the stalled talks by proposing a minimum global corporate tax rate of 15%, surpassing levels in some countries but falling below the lowest G7 level.
Despite this, significant disagreements persist regarding the minimum tax rate and the formulation of rules to ensure higher taxes for very large firms with lower profit margins, such as Amazon. An unresolved question is whether 15% should be the final rate or considered a floor for subsequent talks within the broader G20 group scheduled for July.
Beyond the rate itself, a crucial point for Britain and others is that large multinationals should pay more tax where they generate sales, not just where they book profits or locate their headquarters. German Finance Minister Olaf Scholz emphasized that their business model allows them more opportunities to avoid taxes than other companies.
The United States is pushing for an immediate end to digital services taxes imposed by Britain, France, and Italy, viewing them as unfairly targeting U.S. tech giants. The talks are intensifying, with potential new tariffs on British, Italian, and Spanish exports to the U.S. if there is no compromise. The U.S. proposes applying the new global minimum tax solely to the world’s 100 largest and most profitable companies.