G7 backs Biden’s radical overhaul of the global tax system

UK Finance Minister Rishi Sunak announced the deal in a video posted to Twitter on Saturday, saying G7 finance ministers – from Canada, France, Germany, Italy, Japan, UK United and United States – had “reached a historic agreement to reform the global tax system to make it fit for the global digital age and, most importantly, to ensure that it is fair so that the right companies pay the right tax in the right places. “

The deal was struck at a meeting of G7 finance ministers in London attended by U.S. Treasury Secretary Janet Yellen, where she called for support for the administration’s efforts to rewrite international tax rules and discourage US businesses from reporting overseas income.

Yellen said on Saturday the deal was a “significant and unprecedented commitment” by the world’s richest economies to prevent companies from avoiding taxes by shifting profits overseas.

“G7 finance ministers today made a significant and unprecedented commitment that gives tremendous momentum towards achieving a strong global minimum tax at a rate of at least 15%,” Yellen wrote in the statement. .

“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,” she said, adding that the tax would also level ‘a playing field for business and encourage countries to compete on positive bases, such as education and training of our workforce and investment in research and development and infrastructure. “

Tech giants such as Apple, Facebook and Google could be affected by the deal. Foreign governments have long complained that large digital companies should pay them more taxes. Some have recently passed taxes specifically targeting the revenues generated by these companies, including those based in the United States such as Facebook, Google and Amazon.

Nick Clegg, Facebook’s vice president for global affairs, said in a statement that the company “has long called for reform of global tax rules and we welcome the significant progress made at the G7.”

“We want the international tax reform process to be successful and recognize that this could mean Facebook is paying more taxes, and in different places,” added Clegg.

Google has said it strongly supports the work being done to update international tax rules and hopes “countries will continue to work together to ensure that a balanced and lasting deal is finalized soon,” the spokesperson for Google, José Castañeda, in a statement to CNN.

And an Amazon spokesperson said, “We believe that an OECD-led process that creates a multilateral solution will help stabilize the international tax system. The G7 agreement marks a welcome step forward in the effort to achieve this goal. We hope to see discussions continue with the broader G20 and Inclusive Framework alliance. ”

Build consensus

The deal marks a significant victory for the Biden administration ahead of next week’s G7 leaders’ summit in Cornwall, demonstrating an initial ability to build consensus within the group.

Led by Yellen, the United States had pushed very hard for such an agreement before the G7. While this is separate from a 15% U.S. minimum corporate tax that Biden has proposed as part of ongoing infrastructure negotiations, officials see it as a critical part of his broader tax agenda.

Biden’s plan to pay at least $ 1.4 billion in new infrastructure spending relies heavily on securing support for a global minimum corporate tax that increases payments to the treasury.

Setting a minimum rate could help discourage companies from shifting their profits to countries where they pay less tax.

Saturday’s deal could help speed up parallel tax negotiations between around 140 countries which are led by the Organization for Economic Co-operation and Development (OECD).

OECD Secretary-General Mathias Cormann welcomed Saturday’s announcement, calling it “a decisive step towards the global consensus needed to reform the international tax system”. He added in the statement that the decision added “significant momentum” to the upcoming parallel tax negotiations.

Ireland, which has been successful in recruiting global companies – including large US tech companies – by offering a corporate tax rate of just 12.5%, is a country that has expressed significant reservations about the proposal. Biden.

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