After debating the issue for more than eight years, the Secretary General of the Organization for Economic Cooperation and Development (OECD), Mathias Cormann, welcomed a historic international meeting. agreement by the G-7 finance ministers of the United States, Japan, the United Kingdom, Germany, France, Italy and Canada on the key elements of the global tax reform designed to address fiscal challenges related to the digitization and globalization of the economy in the world economy digitizing at a rapid pace 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, at a global minimum rate of at least 15%. If the deal is finalized, it could help build momentum for a broader deal to be discussed at talks held in Paris between more than 139 countries, as well as at the upcoming G20 finance ministers meeting in Venice in July.
The G-7 nations also agreed to follow the UK’s lead and make climate reporting mandatory, and agreed on measures to clamp down on the proceeds of environmental crime, to ensure that markets play their part in the transition to net zero.
As Rishi Sunak, UK Finance Minister, saying after the G7 meeting in London:
“The G7 finance ministers have reached a landmark agreement to reform the global tax system to accommodate the global digital age.”
He too additional: “These seismic tax reforms are something the UK has been pushing for and a great prize for the British taxpayer: creating a fairer and more appropriate tax system for the 21st century. This is a truly historic agreement and I am proud that the G7 has demonstrated collective leadership at this crucial time in our global economic recovery. “
OECD Secretary General Cormann also enthusiastically welcomed the outcome of the G-7 finance ministers meeting:
“The combined effect of globalization and digitization of our economies has caused distortions and inequities that can only be effectively addressed through a multilaterally agreed solution.”
He continued: “Today’s consensus among the G7 Finance Ministers, including on a minimum level of global taxes, is a historic step towards the global consensus needed to reform the international tax system. Much work remains to be done. But this decision adds significant momentum to the upcoming discussions among the 139 member countries and jurisdictions of the OECD / G20 Inclusive Framework on BEPS, where we continue to seek a final agreement that ensures multinational companies pay their fair share everywhere. “
Global tax reform
The G-7 finance ministers agreed on the principles of a two-pillar global tax solution to address the tax challenges arising from an increasingly globalized digital global economy, as proposed by the OECD.
According to Pillar One principles, the largest and most profitable multinational companies will have to pay taxes in the countries in which they operate, not just where they are based. These rules would apply to global corporations 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 where they operate.
Under Pillar Two, these companies will pay a minimum global corporate tax of at least 15%, country by country.
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Improve weather disclosures
Ahead of London Climate Action Week, G-7 finance ministers also accelerated action on environmental issues by committing for the first time to adequately include climate change and biodiversity loss considerations in the decision-making process. economic and financial decisions, and to make mandatory financial disclosures in their respective economies. In November 2020, the UK became the first country to commit to doing so.
Related: The need to report carbon emissions amid the coronavirus pandemic
The push towards mandatory reporting is also being discussed by the broader group of G20 nations. Nations are expected to agree to mandatory climate-related financial disclosures in their respective economies ahead of the United Nations Conference of the Parties on Climate Change (COP26) in Glasgow in November.
The views, thoughts, and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Selva Ozelli, Esq., CPA, is an international tax attorney and certified public accountant who writes frequently on tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications, and the OECD.