G-7 reaches landmark deal to overhaul global tax on tech companies

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The Group of Seven Advanced Economies agreed on the outline of a global tax deal that could give governments greater rights to tax US tech giants and set a floor for corporate rates around the world .

The pact at a meeting of G-7 finance ministers in London eases transatlantic tensions that have for years undermined negotiations to update century-old rules for the 21st century economy. It paves the way for a broader Group of 20 agreement starting next month.

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“This global minimum tax would end the race to the bottom in corporate taxation and ensure fairness for the middle class and working people in the United States and around the world,” said U.S. Treasury Secretary Janet Yellen, in a statement after the talks. in London on Saturday.

The British Treasury said on Twitter that the agreement:

Will hit the world’s largest companies with profit margins of at least 10% The G-7 has also agreed to the principle of a global minimum corporate tax for large companies of at least 15% Will tackle the environmental crime with a new nature financial disclosures working group to mirror the work of the climate-related financial disclosures working group Commits for the first time to mainstream climate change and biodiversity loss into decision-making

The aim is to prevent multinational companies from shifting their profits to lower their tax bill, making them pay more in the countries where they operate and adapting the system to deal with the trade in intangibles such as data. and information.

A statement following the G-7 meeting made no mention of any commitment to tax digital businesses, focusing only on large, profitable multinationals. It’s a victory for the United States, which opposed France’s bid for a digital services tax that would target tech giants like Amazon.com Inc. and Facebook Inc.

It is “a historic agreement to reform the global tax system, to adapt it to the global digital age and above all to ensure that it is fair, so that the right companies pay the right tax in the right places”, said the British Chancellor. of the Exchequer said Rishi Sunak after organizing two days of G-7 talks.

Envoys will seek support from G-20 countries, starting with a meeting next month in Venice

“For the first time in several years, the members of the G-7 are able to define the rules of the international system of the 21st century”, declared the French Minister of Finance Bruno Le Maire. “We have been fighting for four years in all European and international forums, here at the G-7 and the G-20 for a fair taxation of the digital giants and for a minimum tax on companies.

While many technical details have yet to be decided in the coming weeks, the G-7 on Friday reported a breakthrough on how to share the spoils of taxing tech companies.

This has always been tricky since the United States has refused any confinement of digital companies in the new regulations. However, Europeans, under political pressure from voters to make technology companies pay more, have always wanted to explicitly target digital in any new initiative.

The issue is one of the two pillars of a debate that has lasted for years in the Organization for Economic Co-operation and Development. The other was to establish a global minimum tax so that countries could take the profits their businesses make in low-tax jurisdictions.

“The proposed changes to our international tax rules will set a new framework for many decades to come,” said Melissa Geiger, head of tax policy at KPMG. “Countries and businesses need to think deeply about changes from a long-term perspective. “

Under President Donald Trump, the transatlantic divide on digital issues has turned into a battle of unilateral action and threats of trade sanctions, which although suspended, are still in place. Yellen maintained the Trump-era stance of opposing the isolation of U.S. digital companies, such as Amazon.com Inc. and Facebook Inc., although she offered a solution to tax them more broadly. multinationals.

The antipathy was greatest between Paris and Washington, as France was the first country to bypass the OECD’s slow process on how to tax profits, opting for a controversial levy exclusively on the digital incomes of large companies. companies in operation.

As the United States and Europe exchanged threats over the past two years, OECD negotiators grappled with devious technical solutions that would be politically acceptable to both sides.

The arrival of Joe Biden at the White House has radically changed the situation. His administration swept through the complex system to define what type of business would fall under the new rules and replaced it with a simplified approach.

The G-7 deal suggests that the United States and Europe have found a way to square the circle so that all tech companies are included, without having to define them as such. But there were no details on exactly where to set the thresholds, which will need to be resolved in negotiations at the OECD that will meet in late June.

Venice marks another opportunity for progress. Although it may lead to a broad political agreement, some countries will first have to adopt national legislation. The OECD has said a final deal may not arrive until October.

“The chances of a global agreement have increased considerably,” said EU Economic Commissioner Paolo Gentiloni. “Now we have to go the last mile to extend this consensus to all G20 members and all countries involved in the inclusive framework of the OECD.”

(Updates with comments and statement details.)

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