Top finance officials in the Group of Seven (G-7) on Saturday announced their commitment to push for a global minimum tax of at least 15 percent in international tax negotiations, a rate advocated by the Biden administration.
G-7 finance ministers and central bank governors said in a statement following a meeting in London that they strongly support the multilateral negotiations “to address the tax challenges arising from globalisation and the digitalisation of the economy and to adopt a global minimum tax.”
The G-7 consists of the United States, Canada, France, Germany, Italy, Japan and the United Kingdom.
The announcement is in line with the priorities of the Biden administration, which proposed a global minimum tax rate of at least 15 percent last month. The G-7 finance officials said in their statement that they would push for the rate to apply on a country-by-country basis.
Negotiations on international tax issues have been taking place among a broader number of countries at the Group of 20 (G-20) and the Organization for Economic Cooperation and Development (OECD). The G-20 is hoping to reach a political agreement in July.
If an agreement is reached on a global minimum tax at the OECD, it would encourage countries to establish mechanisms to ensure that corporations pay a minimum level of tax on their earnings, regardless of where the companies and profits are located. Implementation could take some time once an agreement is finalized, since countries would need to update their domestic laws and possibly also their tax treaties.
The Biden administration sees a deal on a global minimum tax as a way to help prevent U.S. companies from becoming less competitive if the U.S. increases its corporate taxes. President Biden has proposed paying for his infrastructure plan in part by raising the U.S. corporate tax rate from 21 percent to 28 percent and by raising a U.S. tax on corporations’ foreign earnings to 21 percent.
Treasury Secretary Janet Yellen praised the G-7 announcement.
“That global minimum tax would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world,” she said in a statement. “The global minimum tax would also help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our work forces and investing in research and development and infrastructure.”
Yellen said in a press conference on Saturday that the efforts on a global minimum tax are “far from over,” and that the administration looks forward to working with the G-20 and OECD in the coming weeks to finalize a deal.
The OECD is also working to reach an agreement that pertains to the location of where corporate profits are taxed.
The G-7 finance officials said in their statement Saturday that they commit “to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises.”
Some countries, particularly in Europe, have enacted digital services taxes in an effort to collect revenue from large tech companies that have many users in their jurisdictions but pay little in taxes there. U.S. policymakers have strongly opposed these taxes, arguing that they unfairly target American tech companies.
The G-7 finance officials said that they “will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies.”