G7 needs to succeed in settlement on international company taxation

The leading industrialized nations will agree on a common position on the taxation of multinational corporations on Saturday to end a three-decade race to the bottom in corporate taxation that would generate additional revenue for governments around the world.

The finance ministers of the G7 group of states were haggling over details of the agreement late Friday at a meeting in London hosted by British Chancellor Rishi Sunak.

Delegates at the meeting said the G7 would generally agree to change the foundations of international corporate tax law for the first time in a century. The historic plan aims to force the world’s largest corporations to pay more taxes in countries where they do business, not just where they are headquartered.

German Finance Minister Olaf Scholz told the BBC that he was “absolutely confident” that the ministers would reach an agreement. “We’re going to come to an agreement that will really change the world,” he said.

French Finance Minister Bruno Le Maire said ministers were on the verge of a “historic deal” that would show the world that the G7 was still a global force in setting the rules of the international order for the 21st century.

One person closely involved in the negotiations said they expected “a very good communiqué” when the talks conclude on Saturday.

The federal states have been negotiating an international tax agreement since 2013. Talks at the OECD left the US and European countries at odds, particularly over taxing the big US tech companies, but the prospects for a deal rose significantly after Joe Biden replaced Donald Trump as US President earlier this year and submitted new proposals.

The G7 finance ministers are expected to release a statement on Saturday setting out their new common position and supporting the Biden government’s call for both a global regime for the world’s largest companies and a global minimum interest rate.

There are still questions to be clarified as to whether a global minimum tax would correspond to the rate of 15 percent proposed by the USA or whether it should be defined as “at least 15 percent”, according to one of the parties involved.

Two people with knowledge of the talks said the US is pushing for a “hard bargain” on when the UK, France and Italy should get rid of their digital taxes if a deal is reached.

The US wants this to happen immediately, but France and the UK think this is not a start as the digital giants will have to pay less taxes than they do now, but before the laws are in place, due to the promise that the US will implement an agreement Congress passed.

“We hope to reach an agreement, but the details are well balanced,” said one participant.

The UK Treasury said there had been “progress” but Sunak allies said there were still sticking points businesses would stick to and how much of their global profits would be affected.

The US, meanwhile, is keen on a global minimum rate as that would prevent its tech giants from shifting their profits to low-tax countries.

Much of the taxes levied will likely come from US corporations, so the aforementioned person, Janet Yellen, the US Treasury Secretary, said “was a tough business.”