LONDON – A landmark deal struck on Saturday by the world’s richest countries will see a global minimum corporate tax rate imposed on multinational companies, including tech giants like Amazon, Apple and Microsoft.
After two days of talks in London, finance ministers from the Group of Seven or G7 countries said they had agreed to a minimum global corporate tax rate of at least 15%.
Changes would also be made to ensure that large companies, especially those with a strong online presence, pay taxes in countries where they have sales and not just where they have an operational base.
Secretary of the Treasury Janet Yellen who attended the talks in London hailed the deal, writing on Twitter that ministers had “made a significant and unprecedented commitment today that gives tremendous momentum towards achieving a strong global minimum tax at a rate at least 15% “.
UK Finance Minister Rishi Sunak, who chaired the meetings, called it a “moment of pride” which would create a level playing field for businesses around the world.
Ministers from other G7 members – Canada, France, Germany, Italy and Japan – also signed the joint communiqué, which said the non-binding agreement would address “the fiscal challenges resulting from globalization and the digitization of the economy and adopt a global minimum tax. “
President Joe Biden originally proposed an overall minimum rate for corporate tax – the tax businesses pay on their profits – of 21%. But last month, the Treasury Department introduced a plan for a 15 percent “floor”.
Leaders of the Group of 20 major economies, or G20s, including emerging economies like China and India, will also be pressured to adhere to the floor rate.
Public coffers in many countries are running out after the coronavirus pandemic, as many wealthy countries have borrowed hundreds of billions of dollars to support their economies – a deficit they now urgently need to recoup.
Dr Patrick Holden, associate professor of international political economy at Plymouth University in England, told NBC News the deal was “historic” and a major change after decades of unbridled tax competition. He added that this would help “rebalance” relations between the state and big business.
Calling it a “big win” for the Biden administration, Holden said smaller countries were less likely to directly benefit from the deal. While tech giants may be the hardest hit, other types of multinational companies would also be affected by the global deal, he said.
The United States has proposed to levy the new global minimum tax only on the 100 largest and most profitable companies in the world.
Any final deal could have major repercussions for low-tax countries and tax havens, but national governments could still set whatever local corporate tax rates they want.
But if companies pay lower rates in a particular country, their home governments could now potentially “top up” their taxes to the minimum rate, eliminating the benefit of shifting profits from one country to another.
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The deal would require final approval at the G7 summit in England next week, which will see world leaders descend on Carbis Bay, a small seaside town about 300 miles southwest of London.
Global recovery from the pandemic should feature high on the G7 agenda, along with the fight against climate change.
It will be Biden’s first overseas trip as president when he goes to the summit. His trip will also include a meeting with Queen Elizabeth II of Great Britain, followed by a NATO meeting in the Belgian capital, Brussels.