UPDATED: G7 nations near historic deal on taxing multinationals

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Group of Seven rich nations will seek to overcome long-standing differences on Saturday and strike a landmark deal to close the net on large companies that they say do not pay enough tax.

The proposed 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.

“We are just one millimetre away from a historic agreement,” French Finance Minister Bruno Le Maire told the BBC on Friday as he and other G7 finance chiefs met in person for the first time since the start of the pandemic at talks in London.

British finance minister Rishi Sunak, who is chairing the talks, also wants large companies to be required to declare their environmental impact in a consistent way. The G7 is likely to commit to avoid withdrawing COVID stimulus too early as well.

Britain’s finance ministry said G7 finance ministers who are meeting in London for a second day of talks on Saturday had made progress in their negotiations.

“Chancellor Rishi Sunak and fellow G7 finance ministers take a break following a morning of productive discussions in London,” Britain’s Treasury said below a photograph of finance ministers and other senior officials which it posted on its Twitter account.

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 has given 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.

Yet major disagreements remain on both the minimum rate at which companies should be taxed, and on how the rules will be drawn up to ensure that very large firms with lower profit margins, such as Amazon, face higher taxes.

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One question is whether 15% should be the final rate or whether it should be regarded as the floor for a final deal, leaving room to agree a higher level at subsequent talks within the broader G20 group of nations scheduled for Venice in July.

Beyond the level itself, just as important for Britain and many others is that large multinationals pay more tax where they make their sales – not just where they book profits, or locate their headquarters.

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

The United States is also holding out for an immediate end to the digital services taxes levied by Britain, France and Italy, which it views as unfairly targeting U.S. tech giants for tax practices that European companies also use.

“It’s going to go right to the wire,” one source close to the talks said. “The United States are holding to their position, as are we.”

British, Italian and Spanish fashion, cosmetics and luxury goods exports to the United States will be among those facing new 25% tariffs later this year if there is no compromise.

The U.S. has proposed levying the new global minimum tax only on the world’s 100 largest and most profitable companies.

Britain, Germany and France are open to this but want to ensure companies such as Amazon – which has lower profit margins than other tech firms – do not escape the net. 

Photo: A worker vacuums a red carpet laid out for dignitaries of the Group of Seven Finance Ministers summit in London, Britain. British Chancellor Sunak is hosting G-7 finance ministers and central bank chiefs, ahead of the main G7 summit scheduled for 11-13 June 2021. EPA-EFE/HOLLIE ADAMS / POOL