UPDATED: G7 finance ministers agree global minimum tax of at least 15%

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A group of the world’s richest nations reached a landmark deal on Saturday to close cross-border tax loopholes used by some of the world’s biggest companies.

The Group of Seven said it would back a minimum global corporation tax rate of at least 15%, and put in place measures to ensure taxes were paid in the countries where businesses operate.

“After years of discussion, G7 finance ministers have reached a historic agreement to reform the global tax system to make it fit for the global digital age,” British finance minister Rishi Sunak told reporters.

The accord, which could form the basis of a global pact next month, is aimed at ending a decades-long “race to the bottom” in which countries have competed to attract corporate giants with ultra-low tax rates and exemptions.

That has in turn cost their public coffers hundreds of billions of dollars – a shortfall they now need to recoup all the more urgently to pay for the huge cost of propping up economies ravaged by the coronavirus crisis.

Ministers met face-to-face in London for the first time since the start of the COVID-19 pandemic.

According to a copy of the final agreement seen by Reuters, the G7 ministers said they would “commit to a global minimum tax of at least 15% on a country by country basis”.

“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,” the text added.

The ministers also agreed to move towards making companies declare their environmental impact in a more standard way so investors can decided more easily whether to fund them, a key goal for Britain.

Rich nations have struggled for years to agree a way to raise more revenue from large multinationals such as Google, Amazon and Facebook, which often book profits in jurisdictions where they pay little or no tax.

U.S. President Joe Biden’s administration gave the stalled talks fresh impetus by proposing a minimum global corporation tax rate of 15%, above the level in countries such as Ireland but below the lowest level in the G7.

See also: What Is A Global Minimum Tax And What Will It Mean?

G7 finance ministers meeting in London also called for more coordination to measure what impact companies are having on the climate and environment, warning of the risk of fragmentation as local jurisdictions adopt different approaches.

“We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants…,” said a final communique released after the two days of talks.

“This will help mobilise the trillions of dollars of private sector finance needed, and reinforce government policy to meet our net zero commitments,” it said of a growing number of pledges by major economies to attain net-zero carbon emissions.

Central banks and other financial regulators complain that there is a lack of reliable data about how exposed businesses on their territories are to climate risk and how environmentally friendly or otherwise their activities are.

Such data are now most often collected on a voluntary basis, although some jurisdictions such as France have already made such reporting mandatory.

The push towards mandatory reporting is being discussed by the wider group of G20 nations and some believe an international agreement on it could be reached by the time of the U.N. Climate Change Conference in Glasgow starting Nov. 1.

The G7 communique said mandatory disclosures should be made according to existing recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD).

Photo: British Chancellor of the Exchequer Rishi Sunak (C) welcomes G7 Finance Ministers to Lancaster House during the G7 Finance Ministers meeting in London, Britain. EPA-EFE/ANDY RAIN