- Friday, April 19, 2024
By: Sarwar Alam
UK chancellor of the exchequer Rishi Sunak on Saturday (5) welcomed “seismic tax reforms” agreed by the world’s richest economies at the G7 finance ministers meeting, chaired by Britain.
Finance ministers meeting in London agreed to battle tax avoidance through measures to make companies pay in the countries where they do business. Multinational tech giants such as Amazon and Google are expected to be among those covered in the ambit of the proposals.
“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,” said Sunak.
“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,” the Indian-origin minister said.
Finance ministers of the Group of Seven – the UK, US, Canada, France, Germany, Italy and Japan – as well as the European Union agreed to the principle of a global minimum rate that ensures multinationals pay tax of at least 15 per cent in each country they operate in.
Ensuring markets play their part in the transition to net zero, the group also followed the UK with 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.
During the meeting, the 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, 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 per cent profit margin – and would see 20 per cent of any profit above the 10 per cent 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, the Treasury department said.
Under Pillar Two, the G7 also agreed to the principle of at least 15 per cent 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 Sunak said to made 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 and Central Bank Governors meeting in July.
The G7 also welcomed the World Bank’s efforts on global health and vaccines, and urged them to use their financial firepower to help poor countries obtain vaccines, including through the United Nations led COVAX initiative.
The G7 also called on the IMF to ramp up its efforts to finance vaccines, and agreed that private sector, including the pharmaceutical industry, to play their parts more too.
The finance ministers meeting in London is being held in the lead up to the G7 Leaders’ Summit, to be chaired by UK prime minister Boris Johnson in Cornwall between June 11 and 13.
