The progress currently being made in curbing tax avoidance by large corporations is highly significant for the world, so I’m surprised there hasn’t already been a discussion about this.
The current initiative will begin to limit the wealth and power of multinationals, and will provide hundreds of billions a year in tax revenue for governments around the world.
President Biden has been quietly but strongly pushing for global tax reform, and there is wide support for it by the EU and elsewhere.
The G7 meeting today is likely to agree to a minimum corporate tax rate of at least 15%, and a system to prevent tax avoidance by multinationals. This will pave the way for a wider agreement at the G20 meeting next month.
Finance ministers from Group of Seven nations meeting in London on Friday are expected to back President Biden’s call for a global minimum tax on corporate profits, giving him an early win in a grueling diplomatic campaign that is just beginning.
The new minimum tax, one half of a two-pronged global reform effort, is designed to halt a cycle of corporate tax-cutting that has sapped government revenue around the globe. As part of a package deal, negotiators are also wrestling with European demands to tax American technology giants such as Google and Facebook, which earn substantial revenue in countries where they have little physical presence.
The EU’s four biggest economies have raised the pressure for a landmark agreement to curb tax abuse by multinational companies to be reached at G7 meetings in London on Friday.
Negotiations to reform the global tax system have been under way since the aftermath of the 2008 financial crisis, with the latest talks taking place between 135 countries at the Organisation for Economic Cooperation and Development (OECD) in Paris. There are hopes that support from the G7 will spur wider backing at a meeting of G20 finance ministers in Italy next month. The aim is to strike an agreement by October.
There are two main pillars of the blueprint being negotiated.
Under pillar one, countries would get a new right of taxation over a share of profits generated in their jurisdiction by an overseas-headquartered multinational. This would mean taxing the source of a company’s revenue, such as sales of shoes or digital services, regardless of the firm’s physical location.
Under pillar two, a minimum corporation tax rate would be imposed by countries on the overseas profits of large companies headquartered in their jurisdiction.