G7 commits to a 15% global corporate tax rate

BrusselsThe seemingly impossible is just around the corner. The group of the world's most developed economies, the G7, announced on Saturday a "historic" agreement on reforming the global tax system, according to British chancellor Rishi Sunak. The ministers of the United States, the United Kingdom, Germany, France, Canada, Italy and Japan have agreed to commit to at least a 15% minimum corporate tax rate. The agreement will also require multinational tech giants to make their tax contribution, he added in a statement posted on Twitter.

The announcement was expected and comes the day after an article in the The Guardian written the finance ministers of Spain, France, Italy and Germany ahead of the G7 summit: "It's been a saga with a lot of toing and froing. It's time to reach an agreement," the article said. This is another step forward in the long journey to achieve a global minimum corporate tax of at least 15%. Biden's arrival at the White House has cleared the path for a global tax which, by now, may be just around the corner.

EU Economy Commissioner Paolo Gentiloni also encouraged the G7 to take the step: "A further step by G7 finance ministers will contribute to the global discussion". He also affirmed that the discussion to get multinationals to pay taxes where they are due is "very well underway". According to data from the European Commission itself, every year EU governments lose between €35bn and €70bn in evaded taxes, a figure that would pay the European budget's Erasmus+ programme three times over. The awareness of this constant loss of economic resources for the public coffers has been increasing in recent months pushed by the pandemic.

Change of mentality

"The pandemic is changing the fiscal agenda, which also has to do with redefining the role of the state in our society. The liberal culture of the 1980s of less taxation is beginning to be questioned because it has become clear that in an emergency situation we need strong public services and cohesive societies. This also explains the change in the United States and Biden's more ambitious position", says Ernest Urtasun, MEP for En comú Podem, who this week celebrated a victory as a negotiator within the EU: after five years they have managed to approve the directive for multinationals to have to make public what they earn and the taxes they pay.

Tax justice organisations consider the initiative to be unambitious, but it has taken five years to unearth it and the fact that it has now been achieved is proof of this momentum. Nor should we forget that Brussels has been able to start issuing joint debt this month to distribute in the form of anti-pandemic funds. Paul Tang, the Socialist MEP who chairs Parliament's fiscal affairs subcommittee and who this week presented the launch of the European Taxation Observatory, agrees: "The mentality has changed compared to the last crisis, it has been understood that we need to invest, underpin the recovery and make it sustainable. It's clear that we need tax revenues, and what better way to start than to tax those - the big corporations and the richest - who don't pay their fair share?"

Next steps

The expectation is to reach an agreement at the G-20 summit in July to lay the groundwork for agreement at the OECD level (where there are 139 countries) this summer as well. The meeting of the G-7 (United States, Canada, Japan, United Kingdom, Germany, France, Italy and the EU as a guest) will pave the way in the final stretch of a complex negotiation on a global scale in which Brussels and a majority of European governments want to go further.

As Bruegel researcher Rebecca Christie explains, Brussels is trying to "be practical" on the tax front because while it had its focus on the taxation of digital giants, it has been able to see that this route could provoke conflicts or create new ones in the OECD negotiation. The Biden administration has also made it clear that it will not accept an agreement that puts American companies in the limelight, in reference to the digital companies that the European Commission wants to pursue in a concrete way. That is why the focus has shifted from the discussion of the famous Google tax to a harmonised minimum corporate rate. "The European Union will probably continue to hold the debate on taxation of digital services," says Christie, who believes that the agreement expected at the OECD will be "a very big breakthrough".

However, this debate will not be easy within the EU either. Brussels has pledged to immediately turn the OECD agreement into a European directive and to present a more ambitious proposal by a more ambitious proposal by 2023. But within the EU countries like Ireland, the Netherlands and Luxembourg will not be easy to convince: "It may happen that all these directives are blocked in the EU because unanimity is needed but it is also true that now Ireland, Luxembourg and the Netherlands will have more difficulties to resist if there is an OECD agreement," says Urtasun, who regrets G7 ministers are not more ambitious and would have preferred a minimum of 21%. In fact, the Irish Liberal MEP Billy Kelleher explains that his country, which has the lowest tax rate at 12.5%, is willing to get involved, but warns that "setting a minimum tax attacks the sovereignty of states to decide their own tax affairs" and believes that the reform should be set, for example, on digital transactions.