The G7 concludes a landmark agreement on taxing multinational corporations

The advanced economies of the Group of Seven struck what they described as a “historic agreement” on taxing multinational corporations in an effort to create unstoppable momentum for a global deal.

A statement released on Saturday showed that the United States, Japan, Germany, France, the United Kingdom, Italy and Canada had reached enough compromise to prevent companies from shifting their profits to lower tax authorities and to ensure the largest multinationals pay more taxes where they operate.

The agreement was hailed by finance ministers, as an important step forward in the negotiations that began in 2013.

Rishi Sunak, Britain’s finance minister, welcomed the agreement as group chair this year. “My financial counterparts and I have reached a historic agreement on global tax reform that requires the largest multinational tech giants to pay their fair share of tax in the UK,” he said.

The UK’s priority in the talks was to increase revenue from companies such as Apple, Google and Facebook.

And the other G7 finance ministers participated in Sunak’s enthusiasm. Janet Yellen, US Treasury Secretary, said the agreement was a “significant and unprecedented commitment” to a global minimum corporate tax of at least 15 percent, which would significantly increase corporate tax revenues in the United States.

Olaf Schulz, Germany’s finance minister, said the deal was “very good news for tax justice and solidarity and bad news for tax havens around the world”.

Bruno Le Maire, his French counterpart, said the G7 nations “rose to the challenge at this historic moment,” saying the deal paved the way for a global agreement at the G20 in Venice in July.

Details of the first part of the agreement, a major US concession on the part of the Biden administration, made it clear that in the future “the largest global companies” with profit margins of at least 10 percent would have to allocate 20 percent of their stake. Global profits for the countries in which they make their sales.

If implemented, it would upend a century of international corporate taxation, where profits are taxed only when corporations have a physical presence.

The definition of the largest global corporations has yet to be settled. This part of the deal will require a global agreement later this year.

In exchange for this privilege, the United States got approval from the rest of the G7 countries for each country to impose a minimum global corporate tax rate of at least 15 percent.

This will reduce the incentive for large companies to declare their profits in tax havens or lower tax authorities such as Ireland because the country in which the company is headquartered will be able to increase corporate tax payments to the effective global minimum.

The United States is expected to be the biggest beneficiary of this second pillar of the deal.

There had been bargaining until Friday night over whether the agreement would set the global minimum at 15 percent or “at least” 15 percent, with France, among other countries, calling for a possible higher rate in a bid to collect more revenue from the biggest companies. .

One of the most contentious issues was the US demand that France, the UK and Italy drop their new digital taxes in exchange for tax rights to the deal. Janet Yellen, the US Treasury Secretary, wanted this to be immediate, while European countries insisted that they would eliminate these taxes once any global agreement was made and ratified.

The statement showed that this part of the deal is still limited by specific commitments. “We will provide appropriate coordination between the application of new international tax rules and the abolition of all digital service taxes, and other similar related measures, for all businesses,” she said.

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