A group of the world’s richest nations reached a landmark deal on Saturday to close cross-border tax loopholes used by some of the world’s biggest companies.
The Group of Seven said it would back a minimum global corporation tax rate of at least 15 per cent, and put in place measures to ensure taxes were paid in the countries where businesses operate.
The agreement has far-reaching implications for Ireland’s corporate tax model used as an attraction for multinationals and will also reduce corporate tax revenue here.
If this formula is agreed at the OECD it will put pressure on Ireland to increase its 12.5 per cent corporate tax rate to the new global minimum.
The G7 ministers said that the tax should be applied at a country-by-country level, to stop multinationals shifting profits between countries to cut their tax bills.
The G7 ministers also backed the other main aspect of the OECD talks, which involve the biggest multinationals paying some tax in markets where they sell.
Talks at the OECD have been underway for some time to try to reach a deal on global tax reform.
The G7 deal will now be taken up at a G20 meeting in Venice in July, with hopes to strike an accord on the detail by the Autumn.
Ireland has argued at the OECD talks that smaller countries should be allowed to maintain low corporate tax rates to attract foreign direct investment.
Responding to today’s agreement, Minister for Finance Paschal Donohoe tweeted that a “sustainable, ambitious and equitable agreement” was in everyone’s interest.
Any agreement would have to meet the needs of both small and large countries, he said. Mr Donohoe attended the meeting as president of the eurogroup of finance ministers, but was not party to the G7 agreement.
“The chances of a global deal have significantly increased,” EU economy commissioner Paolo Gentiloni said after the announcement of the G7 agreement in London.
He added that a global deal could now be reached in July, and the next step would be to win the support of the wider G20 and the other countries involved in the OECD tax talks.
“ Today, in London, we have taken a big step towards an unprecedented global agreement on corporate tax reform,” he said.
An OECD deal on a rate of 15 per cent, or higher, would raise questions about the future of the Irish 12.5 per cent rate.
While the OECD deal would be a recommendation, negotiations would also be likely at EU level with the European Commission and many member states pushing to mandate the 15 per cent rate across the EU.
G7 ministers said they would “commit to a global minimum tax of at least 15 per cent on a country-by-country basis”.
“We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20 per cent of profit exceeding a 10 per cent margin for the largest and most profitable multinational enterprises,” the text added.
This means the G7 ministers support the two main arms – or pillars – of the OECD talks, making agreement look likely over the summer, even if many important details remain to be agreed.
The ministers also agreed to move towards making companies declare their environmental impact in a more standard way so investors can decided more easily whether to fund them.
Rich nations have struggled for years to agree a way to raise more revenue from large multinationals such as Google, Amazon and Facebook, which often book profits in jurisdictions where they pay little or no tax.
US president Joe Biden’s administration gave the stalled talks fresh impetus by proposing a minimum global corporation tax rate of 15 per cent, above the level in countries such as Ireland but below the lowest level in the G7. – Additional reporting Reuters