G7 agrees on 15% minimum corporate tax rate

Photo: AP Rishi Sunak

The world wealthiest countries reached an unprecedented agreement to impose minimum taxes on multinational conglomerates, BBC reported. The deal was struck during a meeting of financial ministers of the G7 countries in London. The group of advanced economies has reached a "historic" deal, UK's financial minister, Rishi Sunak said. Finance ministers meeting in London agreed to commit to the principle of a minimum corporate tax rate of 15%.

Tech giants such as Amazon and Google could be among the companies affected. The move could see billions of dollars flow to governments to pay off debts accumulated during the Covid-19 crisis.

Sunak said the agreement was designed to create a level playing field for global companies. "After years of discussion, G7 finance ministers have reached a historic agreement to reform the global tax system to make it fit for the global digital age," he said. Governments have long grappled with the challenge of taxing global companies operating across many countries. That challenge has grown with the boom in huge tech corporations. At the moment companies can set up local branches in countries that have relatively low corporate tax rates and declare profits there.

That means they only pay the local rate of tax, even if the profits mainly come from sales made elsewhere. This is legal and commonly done. The deal aims to stop this in two ways. Firstly, G7 wants a global minimum tax rate so as to avoid a "race to the bottom" where countries can undercut each other with low tax rates. Secondly, the rules will aim to make companies pay tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits.

G7 vowed further measures to strengthen global economy and curb the climate changes. “We commit to a multi-year effort to deliver the significant structural change needed to meet our net zero commitments and environment objectives in a way that is positive for jobs, growth, competitiveness and fairness. We commit to properly embed climate change and biodiversity loss considerations into economic and financial decision-making, including addressing the macroeconomic impacts and the optimal use of the range of policy levers to price carbon. We commit to sustain policy support as long as necessary and invest to promote growth, create high-quality jobs and address climate change and inequalities”, G7 said in a joint statement.

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