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International relations

G-7 nations reach historic deal to tax big multinationals

Amazon and Google welcome minimum rate of 15%

Group of Seven finance ministers reached an agreement to reform the global tax system at their meeting in London.   © Reuters

LONDON (Reuters) -- Japan, the U.S. and other leading rich nations reached a landmark deal on Saturday to pursue higher global taxation on multinational businesses such as Google, Facebook, Apple and Amazon.

In a move that could raise hundreds of billions of dollars to help governments cope with the aftermath of COVID-19, the Group of Seven large advanced economies agreed to back a minimum global corporate tax rate of at least 15%. Companies will also have to pay more tax in the countries where they make sales.

"G-7 finance ministers have reached a historic agreement to reform the global tax system to make it fit for the global digital age," British finance minister Rishi Sunak said after chairing a two-day meeting in London.

The meeting, hosted at an ornate 19th-century mansion near Buckingham Palace in central London, was the first time finance ministers have met face-to-face since the start of the pandemic.

U.S. Treasury Secretary Janet Yellen said the "significant, unprecedented commitment" would end what she called a race to the bottom on global taxation.

German finance minister Olaf Scholz said the deal was "bad news for tax havens around the world," adding: "Companies will no longer be in a position to dodge their tax obligations by booking their profits in the lowest-tax countries."

Rich nations have struggled for years to agree a way to raise more revenue from large multinationals, which can pay little tax on the billions of dollars of sales they make in countries around the world, draining public finances.

U.S. President Joe Biden's administration gave the stalled talks fresh impetus, however, by proposing a minimum global corporation tax rate of 15% to deter companies from booking profits elsewhere.

The 15% is above the level in countries such as Ireland but below the lowest level in the G-7. Amazon and Google welcomed the agreement and Facebook said it would likely pay more tax.

Nick Clegg, Facebook's vice president for global affairs and a former British deputy prime minister, said: "We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places."

But Italy, which will seek wider international backing for the plans at a meeting of the G20 in Venice next month, said the proposals were not just aimed at U.S. firms.

Yellen said European countries would scrap existing digital services taxes which the United States says discriminate against U.S. businesses as the new global rules go into effect.

"There is broad agreement that these two things go hand in hand," she said.

Key details remain to be negotiated over the coming months. Saturday's agreement says only "the largest and most profitable multinational enterprises" would be affected.

European countries had been concerned that this could exclude Amazon - which has lower profit margins than most tech companies - but Yellen said she expected it would be included.

How tax revenues will be split is not finalized either, and any deal will also need to pass the U.S. Congress.

French Finance Minister Bruno Le Maire said he would push for a higher minimum tax, calling 15% "a starting point".

Some campaign groups also condemned what they saw as a lack of ambition. "They are setting the bar so low that companies can just step over it," Oxfam's head of inequality policy, Max Lawson, said.

But Irish finance minister Paschal Donohoe, whose country is potentially affected because of its 12.5% tax rate, said any global deal also needed to take account of smaller nations.

The G7 includes the United States, Japan, Germany, Britain, France, Italy and Canada.

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