G-7 back steps to deter tax dodging by multinational firms

G7 Finance Ministers meeting

In a bid to try and stop the shifting of funds to tax-efficient countries, the G7 has agreed to take away some of the benefit gained from the revenue movements.

That means they only pay the local rate of tax, even if the profits mainly come from sales made elsewhere.

In effect, the agreement would prevent countries from offering deals with companies to charge very low levels of tax.

At the moment companies can set up local branches in countries that have relatively low corporate tax rates and declare profits there.

"We will provide for appropriate coordination between the application of the new worldwide tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies".

Nations also agree to follow United Kingdom lead in making climate reporting mandatory, and agree measures to crack down on the proceeds of environmental crimes.

Britain's Treasury chief Rishi Sunak, the meeting's host, said the deal would reform the global tax system to make it fit for the global digital age and to ensure "the right companies pay the right tax in the right places".

Britain has, however, signalled it may be willing to scrap its digital services tax on tech platforms if it receives assurances from President Joe Biden's administration that Silicon Valley giants such as Apple and Facebook will not be allowed to continue avoiding taxes.

The first in-person G-7 finance talks since July 2019 came as momentum builds for implementing a common minimum tax rate for globally operating companies, with the aim of preventing them from shifting profits to low-tax jurisdictions, following a recent USA proposal for a tax of at least 15 percent on corporate profits.

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Britain's finance ministry said Saturday morning's talks between the G7 finance ministers had been "productive".

The G7 hopes to reach a final agreement at the July gathering of the expanded G20 finance ministers' group, it added.

Momentum has grown behind the US-led plans to limit the ability of multinationals like tech giants to game the tax system to boost profits, especially at a time when economies around the world are reeling from the impact of the coronavirus pandemic. "Today's agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system", Clegg said.

"We've been fighting for four years in all European and worldwide forums, here at the G-7 and the G-20 for a fair taxation of digital giants and for a minimum corporate tax", Le Maire said, adding that the 15% rate is a starting point that could be pushed higher.

"We are in favor of retaining the policy of setting the tax rate as a national competency, maintaining a level of corporate tax rate suitable for the sustainable development of the economy and investments", Petrides said, according to The Guardian.

Part of the agreement Saturday is that other countries would repeal their unilateral digital taxes in favor of a global agreement.

"Their business model gives them chances to avoid taxes... much more than other companies", German Finance Minister Olaf Scholz said.

They say that a "race to the bottom" saps precious revenues that could go to government priorities like hospitals and schools.

The landmark move comes as governments seek to fix finances battered during the pandemic by slashed tax receipts plus vast spending and borrowing.

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