The G7 (Group of Seven) is made of some of the world’s largest economies including Canada, France, Italy, Japan, the United Kingdom and the United States.
The G7 have agreed to battle tax avoidance by making multinational companies pay more tax, including tech giants such as Amazon and Facebook. A minimum corporate tax rate of 15% has been introduced.
This deal will put pressure on other countries to follow suit including countries like China, Russia and Brazil.
US Treasury Secretary Janet Yellen told reporters that the “historic” agreement on a global minimum tax would “end the race to the bottom in corporate taxation and ensure fairness for the middle class and working people in the US around the world”.
Companies must now pay tax according to the country where they do business, and can no longer dodge tax obligations by doing their taxes in lowest-tax countries. Before this agreement, companies were able to set up local branches in low tax rate countries and declare taxes there which meant even if the profits came elsewhere, they can only pay local rate of tax. This is commonly done and is legal.
A spokesperson for Amazon quoted by Reuters news agency said: “We believe an OECD-led process that creates a multilateral solution will help bring stability to the international tax system.
“The agreement by the G7 marks a welcome step forward in the effort to achieve this goal.”
Amazon is one of the giant companies that is likely to not be affected by this agreement as it runs on low profit margins of only 6.3%. A communique from G7 ministers said that they envisaged pillar one would only apply on “profit exceeding a 10% margin for the largest and most profitable multinational enterprises”.
Even though an over-arching agreement was sealed, the details of how to deal with the different revenues of different corporations is yet to be agreed upon.