On Saturday, the United States, the United Kingdom, and other major countries signed a historic agreement to impose increased worldwide taxation on multinational corporations such as Google (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN) (NASDAQ:AMZN).
The Group of Seven big advanced nations decided to support a minimum worldwide corporate rate of at least 15% and for firms to pay more tax in the countries where they sell goods and services, potentially raising hundreds of billions of dollars to assist them cope with the fallout of COVID-19.
“G7 finance ministers have reached a historic agreement to reform the global tax system to make it fit for the global digital age,” British finance minister Rishi Sunak said after chairing a two-day meeting in London.
The “major, unprecedented commitment,” according to US Treasury Secretary Janet Yellen, would put a stop to a “race to the bottom” on global taxation.
The pact, which has been in the works for years, also pledges to eliminate national digital services tariffs imposed by the United Kingdom and other European nations, which the US claims unjustly target US tech firms.
The measures, though, will need to get broader support at a G20 conference next month in Venice, which will include a number of emerging economies.
“It’s complicated and this is a first step,” Sunak said.
The ministers also agreed to take steps toward requiring corporations to report their environmental effect in a more uniform manner so that investors may more readily determine whether or not to support them, which is a major priority for the UK.
For years, rich countries have struggled to agree on a means to generate more income from huge international corporations like Google, Amazon, and Facebook (NASDAQ:FB), which commonly record profits in jurisdictions where they pay little or no tax.
President Joe Biden’s administration injected new life into the stalled discussions by suggesting a minimum worldwide company tax rate of 15%, which is higher than the rate in Ireland but lower than the lowest in the G7.
Germany and France praised the deal, while French Finance Minister Bruno Le Maire said he would seek for a higher global minimum corporation tax rate than 15%, which he called a “beginning point.”
German finance minister Olaf Scholz said the deal was “bad news for tax havens around the world”.
“Companies will no longer be in a position to dodge their tax obligations by booking their profits in the lowest-tax countries,” he added.
Paschal Donohoe, the finance minister of Ireland, whose country stands to lose a lot of money due to its 12.5 percent tax rate, said any global agreement must also consider smaller countries.
Sunak called the agreement a “great reward” for taxpayers, but said it was too early to estimate how much money it will bring in for the UK.
The agreement does not specify which organizations will be subject to the requirements, just stating that “the largest and most profitable international corporations” will be affected.