G7 finance ministers reached an agreement on the tax distribution of the largest multinationals.
Worldwide crises often provide the impetus for major reforms. Agreements governing the monetary system and world trade were made after World War II. The current corporate tax system was essentially created a hundred years ago. The consequences of the coronavirus pandemic have now given new impetus to the reform of the system.
Coping with the crisis and rebuilding the economies will cost trillions of euros. Everyone is expected to pay their fair share of the costs, including companies that have benefited particularly from digitalisation driven by restrictive measures. This is also essential for other climate change-related reforms and investments.
The crisis however, the effects would not have been sufficient to trigger a global reform of the tax system without a new US stance. Washington’s determined and constructive commitment, expressed by Janet Yellen at the G7 finance ministers meeting in London and other discussions in recent months, has been a fresh breath after Donald Trump’s regime’s braking policy. This has been one of the most welcome signs that the United States is once again taking into account the views of all parties.
The agreement reached by the G7 finance ministers relates to the tax distribution of the world’s largest and most profitable multinationals. They must pay taxes where their profits arise, not just where their head office is located. The G7 countries agree that when the 10% margin is exceeded, they should be able to tax at least 20% of the profits that these companies make from their activities on their territory. An agreement was reached on a global minimum tax of at least 15% in each country.
The G7 also emphasized the need to reach an agreement on both issues at the same time and undertook to work for this at the next meeting of G20 finance ministers and central bank governors in Venice on 9-10 October. July.
In addition an agreement was reached on the significant disagreement in transatlantic relations, ie the introduction of digital services taxes in several European countries in recent years. The application of the new international tax rules, the abolition of these taxes and other similar measures will be coordinated in a meaningful way.
The G7 is a group of prosperous democracies in which the European Union is also involved. It is culturally diverse, but especially in the current context, agrees on key issues.
Of course, we still have a lot of work to do to extend the consensus reached in the G7 to the wider international community. I know that some countries, including Europe, are still wary of these changes.
However, last year has taught us at least that we can only meet the exceptional challenges of our time together and devise common solutions. In addition, many other G20 countries would benefit from a fairer distribution of taxing rights. I am therefore optimistic that this common position of the G7 will give a significant impetus to the next stage of discussions with the OECD and the G20.
Europe and the world are determined to rebuild our economy for the better, and we also have the opportunity to improve international taxation on the basis of the principles of fairness and sustainability. If the process is successful, we will be able to bring in the distribution of taxing rights to modern times. It would lead to an end to global competition for the lowest corporate tax rate.
This competition has been going on for too long. It has produced only a few winners but several billion losers. The end of this race is a prize worth fighting for.
The author is the EU Commissioner for Economic Policy.
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