The Group of Seven (G7) top advanced economies are close to making a decision on the corporate taxation of multinationals, nearing a global deal to create new rules to levy tax from the world’s largest companies.
A G7 pact could be sealed as early as this week and would be a powerful force and prerequisite for a deal in the formal negotiations taking place at the OECD (Organization for Economic Co-operation and Development) in Paris and directed by the wider G20.
An OECD agreement would probably see the largest shake-up in international corporate taxation in a century, severely curbing the ability of companies to shift profits to low tax jurisdictions and ensuring that US digital giants paid more tax in the countries where they made sales.
The US push
Under the Biden administration, the US has been pushing hard for the G7 to reach its own decision as a way of speeding the OECD talks so a final deal can be reached in the coming months.
Last week, the US reduced its ambitions on a global minimum corporate tax rate, lowering it from 21 per cent to an effective rate of 15 per cent to increase its appeal internationally. It also reassured other countries that it was serious in its offer to allow a slice of the global profits of the largest multinationals to be taxed based on the location of sales, and the two “pillars” of the deal are inseparable.
In recent weeks, the US has grown increasingly confident that it has most of the G7 on board with its plans, which were built on blueprints drawn up by the OECD last year. Germany and Italy have been vocal supporters of a global minimum tax.
Daniele Franco, the finance minister of Italy, which is chairing the G20, said that the latest US proposal was “another important step” and the prospects for a global deal on international tax reform were “now concrete.”
France and the UK have put more weight on the location of tax payments. International officials describe the UK as having been “difficult” in the negotiations. But in London, ministers and officials insist they want to make sure that both elements of the deal are prioritized and the US administration is serious in pushing the change to the location of corporate tax payments through its government.
If a deal can be agreed informally by finance ministers, the G7 leaders could formally sign it off at the Cornwall summit on June 11 to 13 presenting a plan to the 135 nations negotiating under the “inclusive framework” at the OECD.