G7 is close to deal on taxation of world’s largest companies

The Group of Seven top advanced economies are close to an accord on the corporate taxation of multinationals, paving the way for a global deal later in the year to create new rules for the imposition of levies on the world’s largest companies.

A G7 pact could be sealed as early as Friday after progress was made among top officials in recent days — and would be a powerful force and prerequisite for a deal in the formal negotiations taking place at the OECD in Paris and directed by the wider G20.

An OECD agreement would probably lead to the largest shake-up in international corporate taxation for a century, severely curtailing the ability of companies to shift profits to low tax jurisdictions and ensuring that US digital giants paid more tax in the countries where they made sales. 

Under the Biden administration, the US has been pushing hard for the G7 to reach its own consensus as a way of spurring the OECD talks so a final deal can be reached in the coming months.

The US last week scaled back its ambitions on a global minimum corporate tax rate, lowering it from 21 per cent to an effective rate of 15 per cent to increase its appeal internationally.

It also reassured other countries that it was serious in its offer to allow a slice of the global profits of the largest multinationals to be taxed based on the location of sales, and the two “pillars” of the deal are inseparable.

In recent weeks, the US has grown increasingly confident that it has most of the G7 on board with its plans, which built on blueprints drawn up by the OECD last year. Germany and Italy have been vocal supporters of a global minimum tax. Daniele Franco, the finance minister of Italy, which is chairing the G20, said on Friday that the latest US proposal was “another important step” and the prospects for a global deal on international tax reform were “now concrete”.

France and the UK have put more weight on the location of tax payments. International officials describe the UK as having been “difficult” in the negotiations. But in London, ministers and officials insist they want to make sure that both elements of the deal are prioritised and the US administration is serious in pushing the change to the location of corporate tax payments through Congress. 

UK officials said at the weekend that their position had not changed, but those close to the negotiations said that in the past week there had been something of a meeting of minds and an accord, initially at the G7, was looking likely.

The G7 does not have a formal role in the process, but the nations of the US, Japan, Germany, the UK, France, Italy and Canada make a powerful bloc in other forums. The group is holding a virtual meeting of finance ministers on Friday and an in-person meeting on June 4 and 5 in London where the central elements of a deal can be agreed, officials said. 

If a deal can be agreed informally by finance ministers, the G7 leaders could formally sign it off at the Cornwall summit on June 11 to 13, presenting a plan to the 139 nations negotiating under the “inclusive framework” at the OECD.

In a sign of growing interest in the chances of a global deal on corporate taxes, Jake Sullivan, the US national security adviser, on Saturday tweeted: “The world is closer than ever before to a global minimum tax. Great to hear positive reception to our proposal and thanks to Secretary Yellen and our partners all around the world for their work on this. This is what it looks like to lead the world to end the race to the bottom.”

The G20 has said it wants to strike a deal by the summer and the progress at the G7 makes this ambitious timetable still just possible, although officials close to the talks think that October might be a more realistic date for a full international agreement.

Countries with lower corporation tax rates have not yet signalled their agreement. Ireland’s finance minister Paschal Donohoe has stressed that smaller countries need to be able to continue to use tax as a competitive tool. 

Ireland’s finance department said on Monday that “key decisions have not yet been discussed at political level by the 139 finance ministers within the [OECD] inclusive framework, including the implementation timeframe and legal basis [for the proposals]”.

Additional reporting by Laura Noonan in Dublin