The Group of Seven (G7) rich nations are on the verge of seeking to overcome long-standing differences and enter into a landmark deal to close the net on large companies that they say do not pay enough tax.
The proposed accord, which could form the basis of a global pact next month, is targeted to end a decades-long “race to the bottom” in which countries have competed to attract multinational giants with ultra-low tax rates and exemptions. That has in turn cost their public coffers hundreds of billions of dollars, a shortfall they now need to redeem, more urgently to pay for the huge cost of propping up economies that got devastated by the pandemic.
“We are just one millimeter away from a historic agreement,” French Finance Minister Bruno Le Maire stated as he and other G7 finance chiefs met in person for the first time since the start of the pandemic at talks in London.
After the first day of negotiations, Mr. Le Maire said G7 countries are still discussing which companies should fall under a new taxation mechanism for large businesses partially based on sales. Countries also still have to find an agreement on the other “pillar” of the reform, a global minimum tax rate.
Rich nations have struggled for years to agree on a way to raise more revenue from multinationals companies like Google, Amazon and Facebook, which often book profits in jurisdictions where they pay little or no tax.
The US President Joe Biden’s administration has given the stalled talks fresh impetus by proposing a minimum global corporation tax rate of 15 percent, above the level in countries such as Ireland but below the lowest level in the G7.
Yet major disagreements remain on both the minimum rate at which companies should be taxed and on how the rules will be drawn up to ensure that very large firms with lower profit margins, such as Amazon face higher taxes.
A question that arises is that, if the 15 percent tax rate will be the final or whether it should be regarded as the floor for a final deal, making it possible to agree a higher level at subsequent talks within the broader G20 group of nations meeting scheduled in July.
Beyond the level itself, just as important for Britain and many others is that large multinationals pay more tax where they make their sales, not just where they book profits or locate their headquarters.
The US is also holding out for an immediate end to the digital services taxes levied by Britain, France and Italy, which it views as unfairly targeting the American tech giants for tax practices that European companies also use.
British, Italian and Spanish fashion, cosmetics and luxury goods exports to the US will be among those facing new 25 percent tariffs later this year if there is no compromise.
The US has proposed levying the new global minimum tax only on the world’s 100 largest and most profitable companies. Britain, Germany and France are open to this but want to ensure companies such as Amazon, which has lower profit margins than other tech firms, do not escape the net.
Related: G7 countries near decision to levy corporate tax from multinationals