The Finance Ministers of the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) reached an agreement, on Saturday 5 June, on international tax reform (see EUROPE 12734/22).
“This is a truly historic agreement and I am proud the G7 has shown collective leadership at this crucial time in our global economic recovery”, the British Chancellor of the Exchequer, Rishi Sunak, whose country holds the rotating G7 presidency, said in a statement.
According to the final communiqué, issued at the end of the meeting, the G7 Finance recognises the importance of making progress in parallel on both Pillars of reform and sets the objective of reaching a comprehensive agreement at the July meeting of G20 Finance Ministers and Central Bank Governors in Venice. The next challenge will be to convince the other major powers, notably China.
On the taxation of digital companies (Pillar I), the G7 Finance Ministers commit to “reaching an equitable solution” on the allocation of taxing rights. The measure will apply to multinational enterprises with a profit margin of at least 10%. The agreement provides that above this threshold, 20% of the profits made are taxed in the countries where the group operates.
On the minimum taxation of companies (Pillar II), they commit, as was envisaged on Friday evening, to introduce a global minimum tax for multinationals “of at least 15% on a country by country basis”. This formulation thus leaves room for manoeuvre in future talks.
The agreement also provides for “appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes”.
An “historic” agreement for the negotiators
On Twitter, the European Commissioner for Taxation, Paolo Gentiloni, said this was a ”big step taken by the G7 towards an unprecedented global agreement on tax reform”. The European Commission will contribute actively to making that happen at next month’s G20 in Venice, he assured.
The agreement was welcomed by several European countries, starting with the Franco-German couple. In particular, French Finance Minister Bruno Le Maire stated his intention to aim for the “highest possible“ minimum tax rate in future discussions.
The Netherlands and Ireland also welcomed the agreement. The Irish Minister for Finance, Paschal Donohoe, acknowledged that “it is in everyone’s interest to achieve a sustainable, ambitious and equitable agreement on the international tax architecture”, all the while stressing that “any agreement will have to meet the needs of small and large countries, developed and developing”.
“There is important work left to do”, pointed out OECD Secretary-General Mathias Cormann, but he said the agreement “adds important momentum” to future discussions within the OECD, particularly in view of the October Inclusive Framework meeting, where a more detailed agreement is expected.
An “insufficient” agreement for NGOs
For NGOs, however, the agreement is neither historic nor sufficient. The Independent Commission for the Reform of International Corporate Taxation (ICRICT) said it would have liked to have seen the introduction of a more ambitious global minimum tax - of 25% - and notes that a 15% tax rate is close to that of tax havens such as Ireland (which has a rate of 12.5%).
The same is true for Oxfam, which stated that the G7 had the opportunity to stand up for taxpayers, but preferred to side with tax havens. For the NGO, the agreement is not fair either and will massively benefit rich countries, thus further increasing inequalities.
For the director of the European Tax Observatory, Gabriel Zucman, the agreement is both “historic, inadequate and promising”. Historic, because it’s the first time that countries agree to a minimum rate; inadequate because 15% is way too low but promising because there’s no obstacle to reaching 25% soon, he explained.
See the 'G7 Finance' press release: https://bit.ly/3ijBjhX (Original version in French by Marion Fontana)