G7 Ministers Reach Global Minimum Tax Agreement, But Some Say Deal is Too Minimal

June 7, 2021 by Reece Nations
From left, EU's Economy Commissioner Paolo Gentiloni, Eurogroup President Paschal Donohoe, World Bank President David Malpass, Italy's Finance Minister Daniele Franco, French Finance Minister Bruno Le Maire, Canada's Finance Minister Chrystia Freeland, Britain's Chancellor of the Exchequer Chancellor Rishi Sunak, Managing Director of the IMF Kristalina Georgieva, Germany's Finance Minister Olaf Scholz, U.S. Treasury Secretary Janet Yellen, Secretary-General of the Organisation for Economic Co-operation and Development (OECD) Mathias Cormann, Japan's Finance Minister Taro Aso pose for a family photo as finance ministers from across the G7 nations meet at Lancaster House in London, Saturday, June 5, 2021 ahead of the G7 leaders' summit. (Henry Nicholls/Pool Photo via AP)

LONDON — Finance Ministers from the Group of 7 have struck a landmark agreement to establish a 15% global minimum tax rate, discouraging large multinational companies from shifting profits to offshore tax-havens.

The deal, announced over the weekend, was struck by the top economic officials from the United States, United Kingdom, France, Germany, Canada, Italy and Japan. The move could signal an end to a year-long debate over whether to impose a worldwide minimum tax rate and force companies like Amazon and Facebook to pay more of their income to governments.

“The G7 Finance Ministers have made a significant, unprecedented commitment today that provides tremendous momentum towards achieving a robust global minimum tax at a rate of at least 15%,” U.S. Treasury Secretary Janet Yellen said in a written statement. “That 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 U.S. and around the world. The global minimum tax would also help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our workforces and investing in research and development and infrastructure.”

The governments are still able to set local corporate tax rates at their discretion, but a global minimum rate could eliminate the advantage of shifting profits to havens by allowing the governments to “top up” taxes to the minimum rate. An additional tax would also be imposed by the deal on global businesses based on the location of their services, regardless of where the companies are headquartered. 

Although a promising development for aid charities championing global tax reform, officials from Oxfam International and the Global Alliance for Tax Justice contend the deal does not go far enough to ensure fairness for poorer countries. Currently, the agreement only exists in principle between the G7 countries and the European Union.

“It’s about time that some of the world’s most powerful economies force multinational corporations, including tech and pharma giants, to pay their fair share of tax,” Executive Director of Oxfam International Gabriela Bucher said in a written statement. “However, fixing a global minimum corporate tax rate of just 15% is far too low. It will do little to end the damaging race to the bottom on corporate tax and curtail the widespread use of tax havens.” 

Bucher continued, “It’s absurd for the G7 to claim it is ‘overhauling’ a broken global tax system by setting up a global minimum corporate tax rate that is similar to the soft rates charged by tax havens like Ireland, Switzerland and Singapore. They are setting the bar so low that companies can just step over it.”

Now, G7 leaders must convince finance ministers from the broader Group of 20 countries to back the deal when they meet in Italy next month. For years, the Organization for Economic Cooperation and Development has negotiated with 140 countries to impose rules stifling tax base erosion and cross-border digital services.

Rishi Sunak, the U.K. ‘s chancellor of the Exchequer, said the deal makes the global tax system “fit for the global digital age” in his announcement of the agreement, according to the Associated Press. However, Sunak noted the agreement was only a “first step” and more work is still needed to further progress the deal during the July G20 summit.

“There is nothing ‘historical’ or ‘game changing’ in this deal in terms of overhauling the outdated and unfair international tax rules,” Dereje Alemayehu, executive coordinator of the Global Alliance for Tax Justice said in a written statement. “It’s a déjà vu! The G7 strike a deal among themselves and pave the way for a manipulated endorsement as an international agreement in informal platforms created by their OECD, outside the UN system.”

Alemayehu continued, “It is Orwellian to call… this deal by developed countries to consolidate the usurpation of taxing rights from source countries where the profits are generated. Developing countries should stand together and stop developed countries from making their deal a binding universal rule.”

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