After more than eight years of discussion on the subject, the Secretary General of the Organization for Economic Co-operation and Development (OECD), Mathias Cormann, welcomed a historic international agreement by G7 finance ministers from the United States, Japan, Great Britain, Germany, France and Italy and Canada become key elements of global tax reform aimed at addressing tax challenges related to digitization and the globalization of the economy as the world economy digitizes rapidly with the emergence of the COVID-19 pandemic.
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The deal requires the largest multinational tech giants to pay their fair share of taxes in the countries in which they operate, with a worldwide minimum of at least 15%. When the deal is final, it could help build the momentum for a broader deal to be discussed in Paris between more than 139 countries and at the upcoming G20 finance ministers meeting in Venice in July.
The G-7 also agreed to follow the UK’s lead in making climate reporting mandatory, and agreed on measures to curb the proceeds of environmental crime to ensure that markets do their part in the net zero transition Afford.
As UK Treasury Secretary Rishi Sunak said after the G-7 meeting in London:
“The G7 finance ministers have reached an historic agreement to reform the global tax system to make it fit for the global digital age.”
He also added: “These seismic tax reforms are something the UK has been pushing for and a great win for the UK taxpayer – creating a fairer tax system fit for the 21st century. This is a truly historic deal and I am proud that the G7 has shown collective leadership at this crucial time in our global economic recovery. “
OECD Secretary General Cormann also welcomed the result of the G-7 finance ministers’ meeting with enthusiasm:
“The combined effect of globalization and digitization of our economies has created distortions and inequalities that can only be effectively addressed through a multilaterally agreed solution.”
He continued: “Today’s consensus among G7 finance ministers, including on a minimum level of global taxation, is a milestone in the direction of the global consensus required for reforming the international tax system. There is still important work to be done. But this decision gives important impetus to the upcoming discussions between the 139 member countries and jurisdictions of the OECD / G20 Inclusive Framework on BEPS, in which we continue to seek a final agreement that ensures that multinational companies everywhere pay their fair share. “
Global tax reform
The G-7 finance ministers have agreed on the principles proposed by the OECD for a global two-pillar tax solution to cope with the tax challenges of an increasingly globalized, digital world economy.
According to the principles of the first pillar, the largest and most profitable multinationals have to pay taxes in the countries in which they operate – not just where they are headquartered. These rules would apply to global companies that have a profit margin of at least 10%, and 20% of any profit above that 10% margin would be reallocated and taxed in the countries in which they operate.
Under the second pillar, these companies pay a worldwide minimum corporate tax of at least 15% per country.
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Improvement of climate information
Ahead of London’s Climate Action Week, G-7 finance ministers also accelerated action on environmental issues by committing, for the first time, to adequately incorporate climate change and biodiversity considerations into economic and financial decision-making processes – and climate-related financial disclosures included in their respective economies are mandatory. In November 2020, Great Britain became the first country to commit to this.
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The push towards compulsory reporting is also being discussed by the broader group of G-20 countries. The nations are expected to agree on mandatory climate-related financial disclosures in their respective economies ahead of the United Nations Climate Change Conference (COP26) in Glasgow in November.
The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.
Wolkenstein Özelli, Esq., CPA, is an international tax attorney and certified public accountant who frequently writes on tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.