London, (Asian independent) UK Chancellor Rishi Sunak announced that the G7 nations have reached “a historic agreement” to reform the global tax system to make it fit for the global digital age.
Sunak made the remarks on Saturday after hosting the first in-person meeting of G7 Finance Ministers in London since the start of the global coronavirus pandemic, Xinhua news agency.
“I am delighted to announce that the G7 Finance Ministers today, after years of discussions, have reached a historic agreement to reform the global tax system to make it fit for the global digital age and crucially, to make sure that it’s fair so that the right companies pay the right tax in the right places,” Sunak said in a video clip posted on Twitter.
The G7 also agreed to the principle of a global minimum corporation tax on large firms of at least 15 per cent operated on a country-by-country basis, creating a more level playing field for British firms and cracking down on tax avoidance, according to Sunak.
“We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20 per cent of profit exceeding a 10 percent margin for the largest and most profitable multinational enterprises,” said a communique released after the meeting.
The communique said the G7 will provide for appropriate coordination between the application of the new international tax rules and the removal of all digital services taxes.
Digital service tax refers to a move taken by countries including France, the UK and Spain to make big internet companies pay their fair share of taxes in countries where they make their sales, but the United States believes it unfairly targets US-based technology companies.
“And that’s a huge prize for British taxpayers. This is a very proud moment and I want to thank my G7 Finance Minister colleagues for their collective leadership and for their willingness to work together to seize this moment to strike a deal of historic significance that finally brings our global tax system into the 21st century,” Sunak said.
US Treasury Secretary Janet Yellen tweeted that global minimum tax would end the race-to-the-bottom in corporate taxation, and help the global economy thrive, by levelling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training their work forces and investing in research and development and infrastructure.
Meanwhile, Irish Finance Minister Paschal Donohoe was also in London for the G7 Finance Minister’s meeting as Eurogroup President.
He previously told Sky News that Ireland, whose corporate tax rate is 12.5 per cent, is strongly opposed to the 15 percent rate proposed by the United States.
In a tweet after the meeting, he said: “I look forward now to engaging in the discussions at OECD (the Organisation for Economic Co-operation and Development). There are 139 countries at the table, and any agreement will have to meet the needs of small and large countries, developed and developing.”
Corporate tax rate in the European Union (EU) average is 20.7 per cent in 2021 but, its members have as low as 9 per cent in Hungary and 12.5 per cent in Ireland, which prove to be attractive to multi-nationals.
The UK has made securing an agreement on digital tax a key priority for its G7 presidency with the fairer system raising more tax to pay for public services.
The new agreement is expected to be discussed in further detail at the G20 Finance Ministers and central bank governors meeting in July.
The Ministers also agreed to work together to ensure a strong, sustainable, balanced and inclusive global recovery that builds back better and greener from the Covid-19 pandemic, and once the recovery is firmly established, they need to ensure the long-term sustainability of public finances to enable them to respond to future crises.
Other priorities in the meeting include transformative effort to tackle climate change, biodiversity loss and continued support to low-Income and vulnerable countries.
The G7 includes the UK, Canada, France, Germany, Italy, Japan and the US.
The UK holds the G7 presidency this year.
British Prime Minister Boris Johnson will host the G7 leaders for a summit in Cornwall in South West England from June 11-13.