Tech giants and tax havens targeted by historic G7 deal

The United States, Britain and other big, rich countries on Saturday struck a landmark deal to withdraw more money from multinational companies such as Amazon and Google and reduce their incentive to shift profits to offshore havens at low taxation.

Hundreds of billions of dollars could flow into the coffers of governments left strapped for cash by the Covid-19 pandemic after the advanced Group of Seven (G7) economies agreed to support a minimum global tax rate on companies of at least 15%.

Facebook said it expects to have to pay more taxes, in more countries, as a result of the deal, which comes after eight years of talks that have gained new momentum in recent months after the the new administration of US President Joe Biden.

“G7 finance ministers have reached a historic agreement to reform the global tax system to adapt it to the global digital age,” UK Finance Minister Rishi Sunak said after chairing a two-day meeting in London.

The meeting, held in an ornate 19th-century mansion near Buckingham Palace in central London, was the first time finance ministers have met face to face since the start of the pandemic.

US Treasury Secretary Janet Yellen said the “significant and unprecedented commitment” would end what she called a race to the bottom in global taxation.

German Finance Minister Olaf Scholz said the deal was “bad news for tax havens around the world”.

Yellen also saw the G7 meeting as a return to multilateralism under Biden and a contrast to the approach of US President Donald Trump, who alienated many US allies.

“What I have seen during my time at this G7 is deep collaboration and a desire to coordinate and resolve a much wider range of global issues,” she said.

Ministers also agreed to have companies report their environmental impact in a more standard way so that investors can more easily decide to finance them, a key goal for Britain.

Imposition time

Current global tax rules date back to the 1920s and fight against multinational tech giants who sell services remotely and allocate a large portion of their profits to intellectual property held in low-tax jurisdictions.

Nick Clegg, Facebook vice president of global affairs and former UK deputy prime minister, said: “We want the international tax reform process to be successful and recognize that this could mean Facebook is paying more taxes, and to different places.”

But Italy, which will seek broader international support for the plans at a G20 meeting in Venice next month, said the proposals were not just targeting U.S. companies.

Yellen said European countries would remove existing taxes on digital services that the United States says discriminate against American businesses as new global rules come into effect.

“There is broad agreement that these two things go hand in hand,” she said.

The key details remain to be negotiated over the next few months. Saturday’s deal says only “the largest and most profitable multinational companies” would be affected.

European countries feared this would rule out Amazon – which has lower profit margins than most tech companies – but Yellen said she expected it to be included.

The way tax revenues will be distributed is also not finalized, and any deal will also need to be passed by the US Congress.

French Finance Minister Bruno Le Maire said he would push for a higher minimum tax, calling 15% a “starting point”.

Some campaign groups also condemned what they saw as a lack of ambition. “They are setting the bar so low that companies can just cross it,” said Max Lawson, Oxfam’s inequality policy officer.

But Irish Finance Minister Paschal Donohoe, whose country is potentially affected due to its 12.5% ​​tax rate, said any global deal must also take small countries into account.

The G7 includes the United States, Japan, Germany, Great Britain, France, Italy and Canada.

About Norma Wade

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