Finance Ministers from the G7 countries have all agreed a proposal for a minimum international Corporate Tax rate of 15% which will be combined with the ability of nations to tax the largest multinationals in the countries in which they operate rather than on the normal principles of corporate tax residence.

A communique issued by G7 nations US, Japan, Germany, France, UK, Italy and Canada releases proposals on international Corporate Tax rates. This is the most substantial development since the negotiations began in 2013.

An international tax rate seen as a suitable solution to taxing the tech giants such as Google, Amazon, Apple and Facebook.

The UK has already introduced its own Digital Services tax ahead of the slow progress of the OECD Base Erosion Profit Shifting (BEPS) project.

The G7 agreement reiterates support for the OECD's inclusive framework , agreeing that it is important to progress this new agreement in parallel with the BEPS two-pillar approach.

Under the Pillar One statement:

  • It was agreed that countries could tax 20% of the profits of the biggest multinationals above a 10 per cent margin based on where the company made its sales. They did not need to have a physical presence in that country.

Under Pillar Two:

  • A global minimum corporate tax rate of at least 15%.

Issues to be hammered out

In spite of the optimism that the proposals will be passed by G20 countries later in the year, there are obstacles to be overcome.

Financial services

  • The UK and other countries including the EU want an exemption for financial services. They were deemed as a special case. Generally, they were required to have appropriate capitalised adequacy ratios in each jurisdiction they operated. Consequently, they should be paying the appropriate level of local tax
  • The US wants the Pillar One agreement to extend across all sectors and the largest and most profitable 100 global companies and not be seen as solely targeting US tech companies.
    • This brings some financial service companies under the umbrella.
  • The US has demanded that the UK, Italy and France drop new Digital taxes in exchange for the agreement. The European nations will only do so after full ratification.

The UK charity TaxWatch says its calculations show that the big tech companies would pay less in tax under the current G7 proposals, than with the current digital sales tax.

Useful guides on this topic

Digital Services tax
The Digital Services Tax is a temporary mechanism to tax online sales pending a global solution. How does it work? Who is caught?

Adviser's Tax Penalty Planner: Corporation Tax
A guide to the key direct and indirect tax penalty regimes for returns and payments, excluding VAT.

Corporation Tax instalment payments
When does Corporation Tax (CT) have to be paid by instalments?

Budget 2021: Corporation Tax
From the change in the main Corporation Tax rate to the repeal of the EU Interest and Royalties Directive, the changes to the Corporation Tax system as announced in the Budget are as follows.

External links

TaxWatch analysis shows that package agreed at the G7 would lead to a tax cut for tech companies subject to the Digital Services Tax

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