The Group of Seven’s most advanced economies are close to an agreement on corporate taxation of multinational corporations, paving the way for a global deal later in the year to create new rules for imposing taxes on the world’s largest companies.
A G7 pact could be negotiated as early as Friday after progress among top officials in recent days – and would be a powerful force and condition for an agreement in the formal negotiations taking place at the OECD in Paris and led by the wider G20 .
An OECD agreement would likely create the biggest international corporate tax turmoil in a century, severely limiting companies’ ability to shift profits to low tax jurisdictions and causing U.S. digital giants to pay more tax in the countries where they to sell.
Under the Biden administration, the US has worked hard for the G7 to reach its own consensus as a way to spur OECD talks so that a final agreement can be reached in the coming months.
The US lowered its ambitions for a global minimum corporate tax rate last week by cutting it from 21 percent to an effective rate of 15 percent to increase its international appeal.
It also assured other countries that it was serious in its offer to have some of the global profits of the largest multinationals taxed based on location, and the two “pillars” of the deal are inseparable.
In recent weeks, the US has become increasingly confident that it has most of the G7 on board with its plans, which build on blueprints drawn up by the OECD last year. Germany and Italy were firmly in favor of a global minimum tax. Daniele Franco, Italy’s finance minister who chairs the G20, said Friday that the latest US proposal was “another important step” and that the prospects for a global deal on international tax reform are “now concrete”.
France and the UK have given more weight to the location of tax payments. International officials describe the UK as “difficult” in the negotiations. But in London, ministers and officials insist that they want to ensure that both elements of the deal are prioritized, and the US government is seriously engaged in pushing through Congress to change the location of corporate tax payments.
British officials said over the weekend that their stance had not changed, but those close to the negotiations said there had been some sort of meeting of thoughts in the past week and that an agreement, initially on the G7, seemed likely.
The G7 does not play a formal role in the process, but the nations of the US, Japan, Germany, UK, France, Italy, and Canada are a powerful bloc in other forums. The group will hold a virtual meeting of finance ministers on Friday and a face-to-face meeting on June 4-5 in London where key elements of a deal can be agreed, officials said.
If an agreement can be reached informally by finance ministers, G7 leaders could formally sign it at the Cornish summit from 11-13 June, presenting a plan to the 139 countries under the “inclusive framework” at negotiate the OECD.
As a sign of growing interest in the opportunities for a global corporate tax deal, Jake Sullivan, the US National Security Adviser, tweeted Saturday, “The world is closer than ever to a global minimum tax. Great to hear the positive reception of our proposal and thanks to Secretary Yellen and our partners around the world for their work on it. This is what it looks like to lead the world to end the race to the bottom. “
The G20 has said it wants to close a deal by the summer and progress at the G7 just makes this ambitious timetable possible, although officials close to the talks think October could be a more realistic date for a full international agreement .
Countries with lower corporate tax rates have not yet agreed. Irish Finance Minister Paschal Donohoe has emphasized that smaller countries should be able to continue to use tax as a competitive tool.
Ireland’s finance department said on Monday that “important decisions have not yet been discussed at a political level by the 139 finance ministers within the [OECD] inclusive framework, including timetable for implementation and legal basis [for the proposals]”.
Additional reporting by Laura Noonan in Dublin