The finance ministers of the United Kingdom, France, Italy, Japan, Canada, Germany and the United States met in London to discuss the White House’s plan for an international minimum tariff. The deal ends transatlantic tensions that for years undermined negotiations between some 140 countries over updating age-old tax rules. The deal also paves the way for a broader agreement by the G20 countries next month.
Pay where you earn
The aim of the agreement is to prevent large companies from shifting their profits to avoid tax levies, for example via letterbox companies. The companies have to pay more tax in the countries where they operate.
In broad terms, the rich countries have agreed on two concrete intentions. The countries are behind a plan for a worldwide minimum profit tax rate of 15 percent. In doing so, they hope to stop the ‘race to the bottom’, whereby countries continue to lower their tax rates, in order to attract large companies at the expense of tax revenues in other countries.
In addition, the countries also want rules to be introduced that ensure that the profit tax is actually paid in the country where the profit is generated.
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Not everyone happy
“I am very pleased to announce that after years of discussions, G7 finance ministers have reached a landmark agreement today to reform the global tax system,” UK Chancellor of the Exchequer Rishi Sunak said in a statement. The reform will make the system fit for the global digital age. He also called the deal critical to ensuring “the right companies pay the right taxes in the right place.”
Tax Justice Network, an international organization that works for fairer taxes worldwide, is a lot less optimistic. CEO Alex Cobham says the minimum rate should be at least 25 percent. He calls on the G20 not to agree to the proposals on the table next month.
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