G7 Nations Agree on a Minimum Tax Rate of 15% for Multinational Tech Giants

The Finance Ministers and Central Bank Governors of the G7 met virtually on 28 May 2021, and Finance Ministers met in London on 4-5 June 2021. They were also joined by the Heads of the International Monetary Fund (IMF), World Bank Group, OECD, Eurogroup, and Financial Stability Board (FSB). The group agreed to take concrete actions to address historical challenges and make an effort towards deeper multilateral economic cooperation.

The group announced its commitment to build a strong, sustainable, balanced, and inclusive global economic recovery, tackle climate change, support low-Income, and vulnerable countries, and shape a safe and prosperous future for all. Working towards shaping a safe and prosperous future, the group reiterated its support to the efforts underway through the G20/OECD Inclusive Framework to address the tax challenges arising from globalization and the digitalization of the economy and to adopt a global minimum tax. G7 Nations committed to a global minimum tax of at least 15% on a country-by-country basis.

Following years of discussions, the G7 Finance Ministers have agreed to reforms that will see multinational tech giants pay their fair share of tax in the countries where they do business. The G7 has agreed to a global minimum rate principle that ensures multinationals pay a tax of at least 15% in each country they operate.

The G7 stands for ‘Group of Seven’ industrialized nations. It comprises of US, UK, Germany, France, Canada, Italy, and Japan. More than four decades ago, the group was created as an annual gathering of political leaders to discuss and exchange ideas on various issues, including global economy, security, and energy.

The Finance Ministers of G7 has agreed to the principles of an ambitious two Pillar global solution to tackle the tax challenges arising from an increasingly globalized and digital global economy.

Pillar One

Under Pillar One, the G7 agreed that the largest and most profitable multinationals would be required to pay tax in the countries where they operate and not just where they have their headquarters. The rules would apply to global firms with at least a 10% profit margin – and would see 20% of any profit above the 10% margin reallocated and then subjected to tax in the countries they operate.

Pillar Two

Under Pillar Two, the G7 also agreed to the principle of at least 15% global minimum corporation tax operated on a country-by-country basis. It will create a more level playing field and cracking down on tax avoidance

Discussions on the two Pillars have been ongoing for many years – with the Chancellor making securing a global agreement a key priority of the UK’s G7 Presidency. The agreement will now be discussed in further detail at the G20 Financial Ministers & Central Bank Governors meeting in July 2021.