LONDON: A group of the world's richest nations reached a landmark deal on Saturday (Jun 5) to close cross-border tax loopholes used by some of the world's biggest companies.
The Group of Seven said it would back a minimum global corporation tax rate of at least 15 per cent, and put in place measures to ensure taxes were paid in the countries where businesses operate.
"After years of discussion, G7 finance ministers have reached a historic agreement to reform the global tax system to make it fit for the global digital age," British finance minister Rishi Sunak told reporters.
The accord, which could form the basis of a global pact next month, is aimed at ending a decades-long "race to the bottom" in which countries have competed to attract corporate giants with ultra-low tax rates and exemptions.
That has in turn cost their public coffers hundreds of billions of dollars - a shortfall they now need to recoup all the more urgently to pay for the huge cost of propping up economies ravaged by the coronavirus crisis.
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Ministers met face-to-face in London for the first time since the start of the COVID-19 pandemic.
According to a copy of the final agreement seen by Reuters, the G7 ministers said they would "commit to a global minimum tax of at least 15 per cent on a country by country basis".
"We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20 per cent of profit exceeding a 10 per cent margin for the largest and most profitable multinational enterprises," the text added.
Rich nations have struggled for years to agree on a way to raise more revenue from large multinationals such as Google, Amazon and Facebook, which often book profits in jurisdictions where they pay little or no tax.
Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.
The global minimum tax rate would apply to overseas profits.
Governments could still set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could "top-up" their taxes to the minimum rate, eliminating the advantage of shifting profits.
US President Joe Biden's administration gave the stalled talks fresh impetus by proposing a minimum global corporation tax rate of 15 per cent, above the level in countries such as Ireland but below the lowest level in the G7.
The ministers also agreed to move towards making companies declare their environmental impact in a more standard way so investors can decide more easily whether to fund them, a key goal for Britain.