- G7 nations have decided to set a minimum global corporate tax for multinational companies.
- This move enables the countries to raise billions of dollars to address economic issues.
- The member nations continue to emphasize the importance of combating climate change.
In an unprecedented move on Saturday, June 5, the Group of Seven (G7) countries struck a historic deal to overhaul international laws stopping corporate tax avoidance by large multinational companies.
Under the new agreement put forward by the Finance Ministers and Central Bank Governors of the world's richest countries, big multinational companies like Apple, Amazon and Google will have to pay higher taxes.
The G7 group comprises Canada, Japan, Germany, France, Italy, the United States, and the United Kingdom. These nations have decided to set a minimum global corporate tax at the rate of 15 per cent on overseas profits.
Key Highlights of The G7 Agreement
At a time when countries are facing economic repercussions due to the coronavirus pandemic, this move will enable the governments to raise billions of dollars for their public coffers.
Speaking about the development, Rishi Sunak, the United Kingdom Chancellor of the Exchequer, said that the finance ministers of all the nations signed this agreement befitting the digital global age during a two-day meeting in London. He added that if companies make huge profits from global markets, they should pay the right amount of taxes.
Reiterating similar views, US Treasury Secretary Janet Yellen said this taxation will end companies’ ‘race to the bottom’.
Currently, multinational giants save billions of dollars by shifting to tax-haven jurisdictions such as the Caribbean Islands including Cayaman Islands, Bahamas or British Virgin Islands, or countries like Switzerland, which have low corporate tax rates.
Under the new G7-backed pact, the global business behemoths will now have to pay taxes to countries where they opt to sell their products and services.
Climate Change In Focus
The G7 group has also decided that companies will have to declare the environmental impact of their business operations. This will assist investors in deciding whether they should fund the companies or not.
Last month, the environment ministers of these countries signed an agreement to limit the rise in global temperatures to 1.5 degree Celsius. Earlier the target was to limit it to two degrees Celsius.
To combat climate change, the group also decided to stop investing money in coal-fired projects in poor countries.