G7 strike ‘truly historic’ agreement to tax global tech firms and multinationals

Image credit: HM Treasury (Flickr CC2.0)

The G7 has today agreed to back a historic international agreement on global tax reform which delivers on the Chancellor’s promise for big international companies to start paying their fair share.

Chairing the G7 Finance Ministers meeting in London, Rishi Sunak rallied his counterparts to work together to tackle the tax challenges that arise from the global digital economy.

Following years of discussions, finance ministers agreed to reforms which will see multinationals pay their fair share of tax in the countries they do business.

They also agreed to the principle of a global minimum rate that ensures multinationals pay tax of at least 15% in each country they operate in.

Ensuring markets play their part in the transition to net zero, the group also followed the UK’s lead by giving a commitment to make it mandatory for firms to report the climate impact of their investment decisions – and concrete steps to crack down on environmental criminals.

Chancellor Rishi Sunak said: “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.

“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.”

What does the Global Tax Reform look like?

During the meeting, Finance Ministers agreed the principles of an ambitious two Pillar global solution to tackle the tax challenges arising from an increasingly globalised and digital global economy.

Under Pillar One of this historic agreement, the largest and most profitable multinationals will be required to pay tax in the countries where they operate – and not just where they have their headquarters.

The rules would apply to global firms with at least a 10% profit margin – and would see 20% of any profit above the 10% margin reallocated and then subjected to tax in the countries they operate.

The fairer system will mean the UK will raise more tax revenue from large multinationals and help pay for public services here in the UK.

Under Pillar Two, the G7 also agreed to the principle of at least 15% global minimum corporation tax operated on a country by country basis, creating a more level playing field for UK firms and cracking down on tax avoidance.

Discussions on the two Pillars have been ongoing for many years – with the Chancellor making securing a global agreement a key priority of the UK’s G7 Presidency. The agreement will now be discussed in further detail at the G20 Financial Ministers & Central Bank Governors meeting in July.