G-7 countries reach landmark deal on global tax reform

G-7 countries reach landmark deal on global tax reform

British Chancellor of the Exchequer Rishi Sunak (left to right), US Treasury Secretary Janet Yellen, IMF Managing Director Kristalina Georgieva and Canadian Finance Minister Chrystia Freeland discussing the first day of the Group of Seven Finance Ministers at Lancaster House in London on June 4, 2021.

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LONDON – Finance ministers from the most advanced economies, known as the Group of Seven, have backed a US proposal that asks companies around the world to pay at least 15% tax on their income.

“I am delighted to report that the G-7 Finance Ministers have reached today, after years of discussions, a historic agreement to reform the global tax system, to adapt it to the global digital age – and above all to make sure it is fair so that the right companies pay the right tax in the right places, ”UK Finance Minister Rishi Sunak said in a video statement on Saturday.

“Under the principles of historic reforms, the world’s largest companies with profit margins of 10% or more will be targeted – with 20% of any profit above the 10% margin reallocated and then subject to tax in countries where they make sales. “he said in a series of tweets.

“The G7 also agreed to the principle of a global minimum corporate tax for large businesses of at least 15%, operated country by country – creating a level playing field for UK businesses and cracking down on tax evasion. “, did he declare. added.

If finalized, it would represent a significant development in global taxation.

President Joe biden and his administration had initially suggested a minimum overall tax rate of 21% in an attempt to end a race to the bottom between different countries to attract international companies. However, after tough negotiations, a compromise was reached at more than 15%.

A global deal in this area would be good news for cash-strapped countries trying to rebuild their economies after the crisis coronavirus crisis.

But Biden’s idea had not been received with the same level of enthusiasm across the world. The UK, for example, which is also a member of the G-7, did not immediately express support for the proposal.

US President Joe Biden speaks during a meeting with a bipartisan group of members of Congress.

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The issue may be controversial within the European Union thus, where different Member States apply different corporate tax rates and thus can attract large companies. Ireland’s tax rate, for example, is 12.5%, while France’s can reach 31%.

Speaking in April, Irish Finance Minister Paschal Donohoe said small nations should be allowed to have lower tax rates as they do not have the same ability to scale as large economies , the British Guardian newspaper reported.

The world’s most powerful economies have disagreed over taxation for some time, especially following plans to further tax digital giants. The United States, under President Donald Trump, has vehemently opposed digital tax initiatives in various countries and threatened to impose trade tariffs.

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