An agreement to set a global minimum 15 per cent corporation tax rate and to reform taxation for the digital age was hailed as “historic” and as a “tax revolution” by European leaders.
The deal reached by the G7 nations of the United States, United Kingdom, Germany, France, Italy and Canada at a summit in London on Saturday aims to force multinationals to pay more tax where they operate and to curb their ability to shift profits to low-tax jurisdictions.
German minister for finance Olaf Scholz described it as a “tax revolution”.
“The G7 decision on international tax justice is historic. Our intensive efforts over the past three years are bearing fruit,” said Mr Scholz.
“This is very good news for tax justice and solidarity and bad news for tax havens around the world. Corporations will no longer be able to evade their tax liability by skilfully shifting their profits to low-tax countries. Stable tax revenues are important for states to be able to fulfil their functions. This will be even more urgent after the Covid-19 pandemic,” he added.
Supporters hope the accord will build momentum for a global deal at the Organisation for Economic Co-operation and Development (OECD) and conclude years of negotiations over how to divide the tax revenues of digital companies and multinationals. These entities have been able to choose the most advantageous locations to pay tax and can pay little in countries where they have large operations.
The 15 per cent figure is a threat to Ireland’s corporation tax level of 12.5 per cent, which is defended by the Government as an essential way to compete for investment against larger countries with bigger markets. But it is seen from abroad as a “beggar thy neighbour” policy.
“That 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 US and around the world,” said US treasury secretary Janet Yellen.
European Commission president Ursula von der Leyen welcomed the agreement as a “big step towards fairness and a level playing field”. European commissioner for Economy Paolo Gentiloni vowed to work to bring on board the wider G20 at a summit in Venice next month.
“The chances of a global deal have significantly increased,” said Mr Gentiloni. He pledged to work towards winning the support of the wider G20 and countries involved in the OECD debate.
“Today in London we have taken a big step towards an unprecedented global agreement on corporate tax reform,” he said.
In France, the deal is seen as a win for national diplomacy.
“We can be proud,” said minister for European affairs Clement Beaune, who characterised the deal as the result of “a battle” waged by Europe for almost four years, led by France and Germany
“It’s a historic agreement . . . an ambitious agreement,” said French minister for finance Bruno le Maire, who vowed to push for the minimum tax rate to be higher.
“The minimum rate of corporation tax we agreed on is 15 per cent. And I’m saying 15 per cent as a minimum – that’s a starting point and in the coming months we will fight for a minimum corporation tax that is as high as possible.”
The figure of 15 per cent was reached as a compromise, after an initial proposal by the administration of US president Joe Biden to set a global minimum of 21 per cent. Washington’s support is seen to have been key to unlocking progress, which stalled under the previous administration.
Analysts caution, however, that the effectiveness of this deal will rely on complex details yet to be worked out over how to establish where companies should pay tax on their revenues.