Some large companies like to move their headquarters to countries where they have to pay less taxes. As a result, other countries are losing billions in revenue. This is about to change soon.
The finance ministers of the seven leading industrial nations (G7) have agreed on the goal of a global minimum tax of 15 percent for companies. This emerges from the final declaration of the two-day ministerial meeting in London published on Saturday. Federal Finance Minister Olaf Scholz and his British counterpart Rishi Sunak described the G7 agreement as “historic”.
However, other countries must now be convinced so that the agreement can actually be implemented. Accordingly, the G7 finance ministers hope to reach a corresponding agreement in the extended group of industrialized and emerging countries at the meeting with their G20 colleagues in July. According to Scholz, this “tax revolution” should be prepared in meetings with the OECD in the coming weeks.
The focus is on large technology companies
For years there has been an international struggle to establish minimum taxation for companies. The background to this is the tax avoidance strategies of large corporations, which often move profits mathematically to countries with low tax rates. Large technology companies are particularly in focus. The compromise between the seven countries will make the global tax system “fit for the digital age,” said UK Treasury Secretary Sunak in a televised address.
The final declaration of the meeting in London also states the commitment to a better distribution of the rights to tax the profits of large multinationals. This second pillar of the reform proposed by the OECD is aimed primarily at the mostly US-American digital corporations such as Google, Facebook and Amazon.
According to Scholz, the agreement for tax havens is bad news. “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 so that states can fulfill their tasks.”
Corona pandemic led to holes in national budgets
The debate has picked up speed since US President Joe Biden spoke out in favor of a minimum rate of 15 percent for international companies. Previously, his Treasury Secretary Janet Yellen had even brought 21 percent into play as a minimum rate. The 15 percent that has now been agreed is expressly declared as a minimum value, among other things under pressure from France.
Previously, the corona pandemic and the resulting holes in state budgets had boiled up the issue of tax justice. Before the crisis, the tax practices of large corporations were criticized, now “they are impossible to accept,” it said from diplomatic circles. “Stable tax revenues are important so that states can fulfill their tasks,” said Finance Minister Scholz. “This will be even more urgent after the corona pandemic.”
Emerging countries should be better off
The G7 final declaration also states that countries in which large corporations generate their sales should benefit more than before from the tax payments made by the companies. That should do better for many emerging markets. It could help secure the approval of the G20 countries. Some members of the G20 are emerging economies like China, India and Brazil.
In addition to Germany, the G7 countries include France, Italy, the USA, Great Britain, Canada and Japan. The meeting of finance ministers took place in the run-up to the G7 summit, at which the heads of state and government are expected in Cornwall from next Friday, including US President Biden.