G-7 Nations Reach Historic Global Tax Reform Deal

June 5, 2021

G-7 Nations Reach Historic Global Tax Reform Deal

The Group of Seven, known as the G-7 nations, reached a historic global tax reform deal proposed by the United States. It calls for all corporations around the world to pay at least 15% tax on earnings.

The G-7 tax reform encompasses the following nations:

  • Canada
  • France
  • Germany
  • Italy
  • Japan
  • The United Kingdom
  • The United States.

Having all the G-7 nations on the same page for this deal will prevent corporations from fleeing countries for cheaper tax rates. This means the G-7 tax reform could shape the way big corporations pay their taxes.

G-7 Tax Reform: The Announcement

This vast deal was announced by video on Saturday from the G-7 Conference in London. U.K. Finance Minister Rishi Sunak was the finance minister who broke the news to the public.

“G-7 finance ministers today, after years of discussions, have reached a historic agreement to reform the global tax system, to make it fit for the global digital age – and crucially to make sure that it’s fair so that the right companies pay the right tax in the right places.”

Details of the Reform

The global tax reform gets all the G-7 nations on the same page for corporate taxes. Corporations have expanded to multiple countries, and this will keep tax rates somewhat standard. The minimum tax rate for corporations in all G-7 countries is 15%.

The reform will apply to corporations with profit margins of at least 10%. The proponent from the United States was Treasury Secretary Janet Yellen, who pushed this deal to her financial colleagues.

After the G-7 tax reform announcement, Yellen tweeted, “That global minimum tax would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world.”

President Biden, who has raised taxes since he took office, suggested a minimum tax rate of 21%. This was his strategy of keeping corporations in the United States. However, the finance ministers from every country agreed that this was too high.

Even at 15%, this deal will help all G-7 countries recover from the COVID-19 pandemic. Corporate taxes play a significant role in global economies. In other words, this deal will benefit the nations involved.

Original Pushback

The idea, which the United States proposed, was not received well at first by the member nations. The United Kingdom was one country that was initially opposed to the idea.
Countries in Europe alter tax rates to compete for corporations to establish headquarters.

Therefore, the idea of a standard tax rate was not heavily supported. Yellen changed some ideas, and the Biden Administration continued to push the agenda.

Ireland wanted smaller G-7 nations to be exempt from generating more revenue. However, this would have created a flaw with the idea of a standard tax rate. The announcement went live on Saturday and proved that the G-7 countries had come together.

“We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises.”

Some corporations like Google have already stated their approval for the reform agreement.

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