The group of seven leading rich countries has agreed to support new rules for taxing businesses operating internationally. The minimum rate requested by the Biden administration.
The agreement, reached by treasury leaders during a meeting in London on Saturday, addresses long-standing tensions between the United States and the major European economies, which have threatened to destabilize the international tax system and sow Atlantic trade.
Under the agreement, G-7 members will support a global minimum tax rate on the company’s profits and a new way of sharing revenue. Taxes the largest and most profitable companies in the world.
The G-7, which includes Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, has agreed that businesses must pay a minimum tax rate of at least 15%.
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“G-7 finance ministers today have made a significant, unprecedented commitment that will give them tremendous momentum to achieve a strong global minimum tax rate of at least 15%,” said Treasury Secretary Janet Yellen.
More significant details are yet to be prepared, and this agreement is not enough to see the new rules being applied worldwide. For that to happen, it needs the support of a group of 20 leading economies – including other developing economies, including China and India – as well as the support of 135 countries that are negotiating new rules as part of what is known. As an inclusive structure. The G-20 treasury leaders are scheduled to meet in Venice on July 9-10.
“The G-7 finance ministers have reached a historic agreement to reform the global tax system,” said Rishi Sunak, head of the UK Treasury.
The United States, which already imposes a minimum tax on country-based companies, wants to tighten that tax and raise domestic tax rates in order to pay for the Biden administration’s new plans. Doing so unilaterally will increase the cost of having a U.S. headquarters, but if other countries impose similar taxes on their companies, the benefits of escaping the United States will diminish. The United States has proposed to deny certain tax breaks to US operations of companies based in countries that do not impose minimum taxes, in order to motivate other countries toward an agreement.
The main purpose of European countries is to increase taxes for large digital businesses such as Google
Most of them are located in the United States, and to do this, the existing rules need to be modified because they are designed for one age, because businesses must have a large physical presence like a factory in a country. Make a profit there.
“Just because their business is online, does not mean they should not pay taxes in the countries where they operate, their profits are being made,” the treasury leaders of France, Germany, Italy and Spain said in a joint statement on Friday. “Physical balance is the historical basis of our taxation system. This basis must develop as our economies gradually shift online.”
Several European countries raised their stakes in the long-running negotiations by announcing separately, Imposes a national tax on digital businesses, Hopes that this will put pressure on the United States to agree to an international agreement. In retaliation for what it saw as discrimination against U.S. companies, the U.S. government announced a series of penalties for importing from those countries, although it suspended those tariffs until the end of this year.
The G-7 deal could be one step ahead of the tax bills for many digital businesses. An alternative to an agreement might be the overlap of national taxes that can be seen taxing the same profits multiple times in different locations, with the result that digital businesses were keen to avoid.
Large technology companies have long expressed support for an international resolution on how to divide their taxes between countries. Instead of sticking to national taxes, as has been done in some European countries, corporate executives argue that the tax rules must be adhered to – and some personally accept that the global agreement is an increase in their tax bills.
“A diversified solution will help bring stability to the international tax system,” a
A spokesman said: “The G-7 deal is a welcome step in the effort to achieve this goal.”
Google and Google did not immediately respond to requests for comment.
The hardest question in tax negotiations is often dealing with American employees of technology companies. European companies wanted those companies to pay higher taxes in the countries where they trade. But the United States’ rejection of a deal centered solely on technology companies is discriminatory and outdated, given the digital nature of most sectors, a stable position under the Trump and Biden administrations.
Instead, the G-7 countries have agreed to the new tax rules to focus on large, “global” businesses with a profit margin of at least 10%. They agreed that the right to tax profits above 20% would be shared between governments.
That new approach proposed by the United States may provoke opposition in Congress, where some lawmakers are wary of moving ahead with other countries. For some changes, the U.S. Senate will have to agree to changes to the tax treaties, which will receive two-thirds of the vote, with at least Republican support.
“Rationalism deviates from its original purpose and has no apparent basis in tax policy beyond populist appeal,” said Sen, a member of the Finance Committee’s top Republican party. Mike Grobo (R., Idaho) Wrote in a letter to Ms. Yellen last month.
If supported by the G-20 and the wider group of countries involved in the negotiations, the new rules would mark the most radical change in international tax rules since the 1920s, the system that existed when thousands of countries began negotiating the web page of tax treaties.
According to lawyers, the minimum tax rate will put an end to what they say is a “race to the bottom” in recent decades because countries have been engaged in competitive rounds of tax cuts to exclude each other’s businesses.
The Biden administration has proposed raising the corporate tax rate from 21% to 28% and raising the minimum tax on foreign profits of US-based companies from 10.5% to 21%. It is not yet clear whether there is enough support in Congress, even among Democrats, to raise such taxes.
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