The global minimum tax will end the race-to-the-bottom in corporate taxation and ensure fairness for the middle class and working people, Janet Yellen said.
The G7 Finance Ministers have agreed to reforms which will set a global minimum tax rate of 15 percent.
The reforms will ensure multinationals pay their fair share of tax in the countries they do business, the Finance Ministers said in a communique following a 4-5 June meeting in London.
“These seismic tax reforms are something the UK has been pushing for and a huge prize for the British taxpayer – creating a fairer tax system fit for the 21st century,” said UK Chancellor Rishi Sunak, who chaired the meeting.
“This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.”
Under Pillar One of the agreement, the largest and most profitable multinationals will be required to pay tax in the countries where they operate if they have at least a 10 percent profit margin.
The rules will stipulate that 20 percent of any profit above the 10 percent margin will be reallocated and then subjected to tax in the countries they operate.
Under Pillar Two, the G7 agreed to the principle of at least a 15 percent global minimum corporate tax, operated on a country by country basis.
The global minimum tax will “end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people,” said US Treasury Secretary Janet Yellen, who was instrumental in proposing the 15 percent global minimum tax rate last month.
The agreement will be discussed in further detail at the G20 Financial Ministers & Central Bank Governors meeting in July.
During the meeting, the Finance Ministers also committed to properly embedding climate change and biodiversity loss considerations into economic and financial decision-making.
They also pledged their backing to the work of the IFRS Foundation to develop a baseline global standard for high-quality, granular sustainability reporting, built from the TCFD framework and the work of sustainability standard-setters.
The Finance Ministers also agreed to crack down on the proceeds of environmental crimes by introducing and strengthening central company beneficial ownership registries.
In addition, the G7 committed to continue supporting the poorest and most vulnerable countries as they address health and economic challenges associated with Covid-19.
The plan includes implementation of the USD 650 billion general allocation of SDRs by August, and initiatives to tackle debt vulnerabilities and promote debt transparency.
The communique is available here.