G7 global tax agreement

The G7 group of economies has agreed a deal for taxing multinational corporations. Without a single agreement it has been relatively easy for large multinationals to move assets around countries to minimise taxation in any state.

Moreover, some countries have been complicit in this in order to impose local employee taxes and rates, whilst allowing the companies to avoid paying back to the states they do business in. US Treasury Secretary Janet Yellen described this as "the race to the bottom in corporate taxation".

The deal, reached by finance ministers, with a proposed minimum rate of at least 15 per cent was "an historic reform to the global tax system" according to the group’s chair, UK Chancellor Rishi Sunak.

The companies most likely to be affected are the US ‘tech giants’ originally excluded, but France and the UK demanded that these companies would need to be included for the tax to be fair. The deal also replaces the proposed UK and EU ‘digital taxes’.

The deal will now put pressure on other countries to follow suit, including at a meeting of the G20 next month, which includes China, Russia and Brazil.

G7 deal will see companies pay tax in the countries where they are selling their products or services, rather than where the headquarters or declaration of their profits is. The will also be a global minimum tax rate so as to avoid countries undercutting each other with low tax rates. In part the new system is designed to ensure that financial games cannot be played to ensure any company large revenue cannot use accounting to show low profits.

The agreement will be discussed in detail at a meeting of G20 finance ministers in July in Venice.

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