The Group of Seven counties are “just one millimetre away” from a historic taxation deal that will see large companies face a minimum corporate tax rate of at least 15 per cent.
French finance minister Bruno Le Maire said on Friday that G7 finance ministers, who were hammering out a deal at a two-day meeting hosted by the UK at Lancaster House in London, were close to a resolution, with 15 per cent “only a starting point”.
However, disagreements remain over the minimum rate at which companies should be taxed and how the rules will be drawn up to ensure that very large tech companies with lower profit margins, such as Amazon, face higher taxes.
“We need something that is credible. We are still working on this very tricky point of the rate,” Mr Le Maire told journalists outside the event.
“I can understand the difficulty of Ireland and some other European countries, but when there’s such international impetus, this is in the interest of all 27 EU member states to say, yes, we are on board, and we are supporting this new international tax system.”
Finance leaders from the US, Japan, France, Canada, Germany and Italy are discussing the global minimum tax rate with Chancellor of the Exchequer Rishi Sunak, in the first in-person meeting since the start of the pandemic, as the part of the UK’s G7 presidency.
“The group held productive negotiations about reforming the global tax system and tackling the tax challenges that arise in a complex, digital global economy,” Britain’s Treasury said in a statement.
The acceleration in talks comes after US President Joe Biden’s administration gave fresh impetus to stalled global tax talks this year by agreeing to a minimum corporation tax rate of at least 15 per cent last month – well below the average in the G7.
Wealthy nations have struggled for years to agree on a way to raise more tax from large multinationals such as Google, Amazon and Facebook, which often book profits in jurisdictions where they pay little or no tax.
This includes Ireland, which currently has a 12.5 per cent corporate levy. It has been resistant to a higher levy.
“Even Ireland must understand they have to give agreement to this major breakthrough,” Mr Le Maire said.
The minimum rate would prevent major corporations from cheating the system by shifting profits to countries such as Ireland with low corporate tax rates, while also boosting governments’ revenue after the pandemic.
A G7 agreement to establish a minimum tax rate on big tech and other companies could bring in more than $200 billion a year in revenue for British and EU governments if a higher tax rate of 25 per cent were agreed to by the G7, research released by the European Tax Observatory shows.
Mr Le Maire said a new minimum digital tax would raise “significant sums” for G7 economies.
Mr Sunak, who greeted leaders by bumping elbows rather than shaking hands to comply with Covid-19 restrictions, told ministers that the rest of the world was watching.
“We cannot continue to rely on a tax system that was largely designed in the 1920s,” he said.
Mr Sunak said he wants to ensure “companies pay the right amount of tax in the right place”, so that multinationals pay more tax where they make their sales – not just where they book profits, or locate their headquarters.
UK opposition leader Keir Starmer questioned the government’s decision not to back the US proposal for a 15 per cent rate, which could raise £14.7 billion ($20.8bn) for Britain.
“Boris Johnson, why are we the only country not backing it?” Mr Starmer said on Twitter.
Meanwhile, the US wants an end to the digital services taxes which Britain, France and Italy have levied, which it views as unfairly targeting American tech giants for tax practices that European companies also use.
Mr Le Maire said a deal would send an important signal that the G7 could still be influential.
If a deal can be reached by finance ministers, the G7 could then sign it off at the Cornwall summit on June 11-13, and present a plan to the 140 nations negotiating the Organisation for Economic Co-operation and Development’s “inclusive framework”.
A G7 agreement would also provide momentum for advancing global corporate tax negotiations towards a broader G20 finance meeting in July, in Italy.
German finance minister Olaf Scholz said he was confident the talks would end in an agreement on global taxation that would change the world.
“These are very successful talks, we are making progress and I’m absolutely confident that we will get agreements today and tomorrow, and we will be able to have a very clear message on global corporate taxation,” he said, after the first day of the meeting.
“We will have an agreement which will really change the world.”