Finance ministers of the leading industrialized nations, known as the Group of Seven (G7), have backed a U.S. proposal that calls for corporations around the world to pay at least a 15% tax on their earnings.
If finalized, the 15% minimum rate would represent a significant development in global taxation. Members of the G7, which includes Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, will convene for a summit in Cornwall, England next week.
"We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises," according to a statement issued by the G7 finance ministers.
"We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies," the statement added.
U.S. President Joe Biden’s administration had initially suggested a minimum global tax rate of 21% in an attempt to prevent countries from luring international businesses with low or zero taxes. However, after tough negotiations, a compromise was reached to set the bar at 15%.
A global deal in this field would be good news for cash-strapped nations, which are trying to rebuild their economies after the pandemic. But Biden’s idea had not been received with the same level of excitement across the world.
The United Kingdom, for example, did not immediately support the global minimum tax. The issue is also contentious within the European Union, where member states charge different corporate tax rates to attract companies. Ireland’s tax rate is 12.5% while France’s can be as high as 31%.
Ireland has said that smaller nations should be allowed to have lower tax rates given that they don’t have the same capacity for scale as larger economies. The world’s most powerful economies have been at odds over taxation for some time, notably with previous plans to tax digital companies.
Some major companies reacted positively to news of the global minimum tax rate. Facebook said in a tweet that it welcomed the G7 tax rule. Google (NASDAQ:GOOGL) said in a statement that the company supports efforts to update international taxation.
