G7 leaders reach ‘historic’ agreement to crack down on tech giants by forcing Amazon, Facebook, and others to pay more tax

G7 Finance Ministers
G7 finance ministers meet in London on June 5, 2021.

  • The G7 group of wealthy nations has reached a “historic agreement” on taxing multinational companies.
  • The agreement will ensure that tech giants pay more tax where they operate.
  • It also pledges to introduce a global minimum corporate tax rate of 15 percent.
  • See more stories on Insider’s business page.

Finance ministers for some of the world’s wealthiest nations have reached a “historic agreement” to tackle tax abuses by internet giants and to introduce a global minimum corporate tax rate of 15 percent.

“I am delighted to announce that today after years of discussion G7 finance ministers have reached a historic agreement to reform the global tax system,” Rishi Sunak, the UK’s Chancellor of the Exchequer, said after a Group of Seven (G7) meeting in London.

“To make it fit for the global digital age, but crucially to make sure that it is fair so that the right companies pay the right tax in the right places and that’s a huge prize for British taxpayers,” Sunak added.

Read more: The director of wealth management at a $12 billion firm shares 3 stocks set to thrive when corporate taxes rise – and says all of them have at least 15% upside from current levels

The deal – agreed on by Canada, France, Germany, Italy, Japan, the UK, and the US – will ensure that multinationals pay more tax where they operate, the Financial Times said. This is to avoid companies setting up local branches in countries with low corporate tax rates and then declaring their profits there, the BBC reported.

The “first pillar” of the agreement would apply to global companies with at least a 10 percent profit margin, the BBC said. A 20 percent tax on any profit above that margin would be reallocated and taxed in the countries where they make sales, Sunak said on Twitter.

It is likely to affect tech giants, including Amazon, Facebook, and Google, Metro reported.

The “second pillar” is a commitment to introducing a global minimum corporate tax rate of 15 percent. This will disincentivize major companies from declaring profits in tax havens, the Financial Times said. It will also stop countries from trying to undercut each other.

The latter is seen as a big win for the Biden administration. President Joe Biden’s infrastructure plans include a hike in the country’s corporate tax rate, Insider’s Juliana Kaplan reported. If rates are more uniform around the world, as this commitment pledges, it could encourage multinational companies to remain in the US, even with higher taxes, Kaplan said.

Secretary of the Treasury Janey Yellen said on Twitter that the global minimum tax will “end the race-to-the-bottom in corporate taxation” and would “level the playing field” for business.

The “Silicon Six”– Microsoft, Amazon, Facebook, the Google owner Alphabet, Netflix, and Apple – have long been accused of avoiding paying tens of billions less tax over the past decade on trillions of dollars of revenue than the figures cited in annual financial reports would seem to entail, according to the Guardian.

Nick Clegg, Facebook Vice President for Global Affairs, told Insider via email: “Facebook has long called for reform of the global tax rules and we welcome the important progress made at the G7. Today’s agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system. We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places.”

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Janet Yellen wants to overhaul corporate taxes for the whole world – she’s talking to other countries about a minimum rate

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Treasury Secretary Janet Yellen.

  • The Washington Post reports Treasury Secretary Yellen is working on a global minimum tax rate.
  • The nonbinding rate would apply to multinationals, as she seeks to keep them from shopping for the lowest territory.
  • Yellen and Biden want to raise the corporate tax rate but need the rest of the world onboard.
  • See more stories on Insider’s business page.

Treasury Secretary Janet Yellen has been clear since her confirmation hearing and subsequent press appearances that the Biden administration needs to raise new tax revenues. At the same time, she’s warned of the difficulties of implementing a wealth tax, which is favored by the progressive wing of the Democratic Party.

Part of the solution is reforming the corporate tax rate – not just in the US but far beyond its borders.

To that end, Yellen is in active talks with other countries about setting a global minimum rate for corporate taxes, The Washington Post’s Jeff Stein first reported.

The US was long an outlier, with a corporate tax rate of 35% versus the international average of 24%, until former President Donald Trump’s 2017 tax cut slashed the corporate rate to 21%. But even that hasn’t stopped other countries from lowering their rates to attract multinationals. The Post noted that nine countries lowered their corporate tax rate just last year.

Nobel Prize-winning economist Joseph Stiglitz, a mentor of Yellen’s, told the Post that if she is successful in these talks, it would be “a little like the Paris climate accord of taxes.” Yellen is holding talks with more than 140 international counterparts via the Organization for Economic Cooperation and Development (OECD), where countries are looking at global tax issues, with a particular focus on tech.

The goal for now is a nonbinding consensus on a minimum tax rate within the OECD, with the thinking that the US could move off the Trump-era 21% without fear of multinationals leaving to pay taxes at a lower rate somewhere else.

In the background of Yellen’s push for a global minimum is the Biden administration’s current push to find more tax revenue. President Joe Biden is reportedly planning the first major federal tax increase in nearly three decades, according to Bloomberg. One of the proposals on the table is a raise to the corporate tax, something that Biden campaigned on. He’s proposed raising the corporate tax rate to 28%.

The right-leaning Tax Foundation found that, since 1980, the “worldwide average statutory corporate tax rate has consistently decreased,” with the biggest drops coming in the early 2000s. According to the Tax Foundation, “the worldwide average statutory corporate income tax rate” is 23.85%.

Biden also just said this week that Americans earning over $400,000 could see an increase in their taxes, a measure he acknowledged may not win any Republican support.

There could be a complicated path forward for Yellen’s corporate minimum, per the Post. Congress may need to be involved in approving new tax rules, and it could take the countries involved years to enact the tax, if they even choose to adopt it.

As the Post reports, if the complex measure is successful, it would be a huge accomplishment for both Yellen and Biden’s presidency – and maybe the world. It could also help pay for a $2 trillion infrastructure package.

Read the original article on Business Insider