Finance ministers agree deal to force multinationals to pay tax in all countries where they operate
The G7 group of wealthy nations have signed a landmark deal to tackle tax abuses by some of the world’s biggest multinationals and establish a minimum global corporation tax for the first time.
Finance ministers from the group agreed the plan on Saturday as part of talks held in London, the chancellor, Rishi Sunak, said.
The principle of the agreement is that multinationals would have to pay a minimum tax rate of at least 15% in each country they operate.
US president Joe Biden initially proposed a minimum rate of 21%, but was persuaded to reduce this to 15% to make it acceptable to a wider group of countries.
Critics said the G7 had let multinationals off the hook with a rate that failed to prevent tax havens undermining countries with higher tax rates, needed to pay for costs incurred during the pandemic.
Sunak said: “These seismic tax reforms are something the UK has been pushing for and a huge prize for the British taxpayer – creating a fairer tax system fit for the 21st century.
“This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.”
The agreement, which reverses several decades of beggar-thy-neighbour policies, is aimed at multinationals that have played countries against one another to drive down the level of tax they pay.
The scheme will force the world’s biggest companies to pay more tax in countries where they do business as well as where they are headquartered.
Digital businesses such as Amazon, Google and Facebook, which have built huge businesses across the world while only declaring relatively small profits in each country, will also be caught by the agreement.
However, a Treasury source said that most tech giants had expected international action and that most would welcome the global approach.
Within hours of the deal, it was praised by Nick Clegg, Facebook’s vice president for global affairs, who called it “a significant first step towards certainty for businesses and strengthening public confidence in the global tax system”.
“We want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places,” he said. G7 leaders hope the agreement will be endorsed by the G20 group of nations, which includes China, Russia, South Africa and Saudi Arabia, later in the year. More than 130 countries are participating in a parallel exercise to agree a global tax framework, as part of a deal put together by the Organisation for Economic Cooperation and Development, which is expected to follow the G7’s lead at meetings in October.
Aid charities said governments had allowed corporations to escape paying taxes for too long, denying governments funds to tackle health crises, such as the Covid-19 pandemic. With few details available showing how the new system would work, a spokesperson for Oxfam said it appeared low-tax havens would continue to operate. “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,” the spokesperson said.
Labour shadow chancellor Rachel Reeves said Britain must fight harder for the 21% proposal. “It’s encouraging to see these first moves towards a global pact on tax avoidance. But this government has spent the last few weeks watering down what was intended to be an ambitious 21% rate.
“That would have brought £131m extra a week to Britain for our NHS and other public services, while also stopping our high streets being aggressively undercut.”
Her criticism was echoed by the IPPR thinktank, which said that while a 15% rate could raise £7.9bn for the UK, a 21% rate could raise £14.7bn and the move would not be enough to end the race to the bottom on tax. George Dibb, head of the IPPR centre for economic justice, said: “With the UK corporation tax rate set to rise in 2023, the government should be demonstrating leadership and aiming for a global minimum rate of 21% or higher with the ultimate goal of around 25%.”
Meg Hillier, chair of the powerful parliamentary public accounts committee, described the agreement as a “huge breakthrough”, but said it must ultimately translate into extra tax funds. “International tech companies were able to run rings around national tax systems,” she said.
“The only long-term solution was for countries to work together. The devil will be in the detail and I doubt this will be the end of the necessary international action. The proof will ultimately be in the pounds paid to the exchequer and the committee will be watching this closely.”
Margaret Hodge, her predecessor, was more critical. She said that “watering down” the minimum tax to 15% was “embarrassing”. Other campaigners questioned how much would be raised for the UK.
George Turner, director of the Tax Watch campaign group, said: “This seems a great deal for the United States, but I struggle to see that much benefit for the UK, particularly if we are giving up [our] digital services tax.
“It will mean we collect some more tax from UK-based multinationals that use tax havens, but it will do little to raise more from the likes of Google, Facebook, Microsoft.”
Barriers to a deal remain, especially in the US, where it must be passed into law by both houses of Congress.
However, Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and a former chief economist at the International Monetary Fund, said an alliance of Democrats and Republicans who were upset at the treatment of former president Donald Trump by Facebook and Twitter, could come together to endorse the deal.
Retrieved from: https://www.theguardian.com/world/2021/jun/05/rishi-sunak-announces-historic-agreement-by-g7-on-tax-reform (5 Jun 2021)
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