This agreement was described as “historic” by the seven great powers gathered for two days in London. But there will still be a long way to go before a final agreement.
The G7 Finance committed this Saturday to the goal of a minimum global corporate tax rate of “at least 15%”, according to a joint statement released after a meeting of two days in London.
This agreement of the group of the seven great powers was described as “historic” and “moment of pride” by the British Minister of Finance, Rishi Sunak, who chaired the meeting as the host country of the G7.
The compromise of the Seven (United Kingdom, France, Germany, Italy, Japan, United States, Canada) for a global tax reform “adapted to the digital age”, as described by Rishi Sunak, thus sends an important boost for the G20 meeting to be held in Venice in July, where a more concrete agreement is expected.
“France will fight for the next few months to keep it as high as possible”
The final text of the press release, obtained by Agence France-Presse (AFP), also mentions the commitment to a better distribution of the rights to tax the profits of large multinationals, mainly digital and American, the second “pillar” of the reform highlighted by the OECD and including nearly 140 countries.
“The minimum rate of 15% for corporate tax is a starting point, France will fight for the next few months to be as high as possible”, governed Bruno Le Maire, the Minister of Economy. “The fight will continue, at the G20, at the OECD, but the stage which was taken here in London within the framework of the G7, it is a historic stage and which should fill us, all of us French (.. .) of pride, ”he added.
Berlin hails “good news for tax justice and solidarity and bad news for tax havens around the world. Businesses will no longer be able to evade their tax obligations by cleverly shifting their profits to low-tax countries” while the British Minister of Finance welcomes “a historic agreement” of the G7.
The US Treasury Secretary hailed an “unprecedented commitment” from the G7 Finances. “This global minimum tax will end the race to lower corporate taxation, and bring justice for the middle class and working people in the United States and around the world,” said Janet Yellen.
More than 4 billion euros potential for France
Long considered a sea serpent, this project, debated for four years at the OECD, has clearly gained credibility in recent weeks under the American leadership. The G7 countries want to put an end to tax competition in the world which, according to them, is harming everyone at a time when the state coffers have been emptied by the pandemic, while the digital giants have particularly benefited from the crisis.
According to a study published by the European Tax Observatory, the introduction of a minimum rate of 15% would allow the European Union to collect 50 billion euros in additional revenue, including 4.3 billion for France.
The US administration had first mentioned a global corporate tax rate of 21% before changing its mind to 15%, a level that France considered “a minimum”, “a starting point”.
In addition to a world minimum rate, this reform provides for modulating corporate tax according to the profits made in each country, regardless of their tax establishment.
This second point is aimed in particular at the digital giants, who pay taxes often unrelated to the income and profits they generate locally and which have given rise to national GAFA taxes as in France. Discussions with the United States also focused on the timing of the withdrawal of these national measures in favor of international reform.
Still long way
“We still have to go to the G20 and find an agreement with a larger group of countries so it is difficult to say when a final agreement will be reached”, however tempered Rishi Sunak.
This process should last several more years since, in addition to the group of 20, it will be necessary to convince the 140 countries working on the tax reform project within the bosom of the OECD.
Because the idea is not unanimous. The challenge will be to convince countries that have built their economies on particularly low corporate tax rates.
At the head of the refractory clan, Ireland has clearly expressed its hostility to the project. There, the CIT rate is set at 12.5%, which has enabled Ireland to attract large international companies. “We have very serious reservations. (…) I am proud of the role that (this rate) has played in our development,” said the country’s finance minister, Paschal Donohoe.
With a corporate tax rate of 9%, Hungary has fallen behind Ireland.
Although the game already seems lost for countries fiercely opposed to the global minimum tax, Ireland has not said its last word and intends to push until the last minute. With the hope that the OECD will end up setting a rate close to or even equal to its national rate.
The other decisions of the G7 Finances
Weather: This is the other major issue on the menu of the G7 countries, which should be widely discussed at the summit of heads of state and government at the end of next week in Cornwall (South West England).
The G7 Finance supports the plan to make it compulsory for companies to publish their climate risks. It is a key tool in the energy transition, which should allow investors to see more clearly when financing large groups. A broader agreement can be hoped for for the COP26 on climate at the end of the year in Glasgow.
G7 finance ministers are also in favor of adjusting global accounting rules to harmonize the publication of these climate-related risks. Finally, they welcome the forthcoming establishment of a working group aimed at encouraging companies to publish their impact not only on the climate, but also on nature.
Aid to poor countries: The G7 remains committed to helping the most vulnerable countries recover from the health crisis. It endorses the IMF’s new allocation of special drawing rights of $ 650 billion. This issue, the first since that decided upon in the aftermath of the 2008 financial crisis, will increase the IMF’s lending capacities. The ministers also welcome the efforts of the World Bank, in particular to improve the access of poor countries to vaccines.
Economic recovery after the health crisis: The final communiqué reiterates the commitment of G7 members to continue helping their economies heal their wounds, as activity resumes and health restrictions are lifted. Once the recovery is well underway, they intend to ensure that public finances are put back in order, in order to be able to respond to new crises. According to them, the end of the pandemic can only go through the massive deployment of vaccines and tests on a global scale. G7 health ministers have already committed on Friday to share doses with developing countries via the international Covax system.