G7 Countries Reach Deal on 15% Global Minimum Tax Rate for Multinational Corporations

By Jake Johnson, staff writer at Common Dreams. Originally published at Common Dreams

Representatives from seven of the world’s wealthiest nations reached an agreement on Saturday to support a global minimum tax rate of at least 15% for multinational companies, a move aimed at curbing the use of tax havens and ending the decades-long race to the bottom on corporate taxation.

The deal struck by the U.S., Japan, Germany, France, the U.K., Italy, and Canada still faces a long road to implementation, but Saturday’s development marks substantial progress toward a global accord that could allow governments to raise revenue from corporate giants notorious for shifting operations and profits overseas to avoid taxes.

“The G7 has taken significant steps this weekend to end the existing harmful dynamic, making commitments today that provide tremendous momentum towards achieving a robust global minimum tax at a rate of at least 15%,” U.S. Treasury Secretary Janet Yellen said Saturday. “This effort is far from over, and we look forward to engaging closely with the G20 and members of the OECD Inclusive Framework process in the coming weeks to finalize an agreement on the global minimum corporate tax as soon as possible.”

While arguing that the proposed 15% global minimum tax rate is too low, economist Gabriel Zucman hailed the G7 agreement as “a game-changer because it slashes incentives for multinational firms to book profits in tax havens, thus removing incentives for tax havens to offer low tax rates.”

“In effect, this severely undermines (and ultimately destroys) the development model of tax havens,” Zucman, a professor at the University of California, Berkeley whose work has focused on tax avoidance and the use of tax havens.

Zucman explained that a 15% global minimum tax “does not mean that all countries must increase their corporate tax rate to 15%.”

“It means that multinational profits will be subject to a 15% minimum effective rate,” he continued. “Take a German multinational that books income in Ireland, taxed at an effective rate of 5%. Germany will now collect an extra 10% tax to arrive at a rate of 15%—same for profits booked by German multinationals in Bermuda, Singapore, etc. Other nations will proceed similarly.”

According to the E.U. Tax Observatory, an independent research organization, a 15% global minimum tax on multinational corporations would allow the U.K. to bring in €200 million in additional revenue per year just from BP—which, like other major oil giants, works to avoid its tax obligations in its home country by shifting profits to overseas tax havens.

Olaf Scholz, the German finance minister, said Saturday that the G7 agreement—which must ultimately be approved by the U.S. Congress and the legislatures of other nations—is “very good news for tax justice and solidarity and bad news for tax havens throughout the world.”

Tax justice campaigners, though, were highly critical of the deal, warning that its benefits would largely flow to G7 nations while leaving much of the world behind.

“The G7 has decided to finally move the international tax system into the 21st century, but only enough to shamelessly benefit just themselves,” Alex Cobham, chief executive at the Tax Justice Network, said in a statement. “The G7 finance ministers are proposing to follow OECD proposals that would ensure the G7 themselves take the lion’s share of any new tax revenues—which will in any case be limited by their lack of ambition.”

Cobham has argued that the OECD framework—which the G7 leaders praised in their communiqué—privileges countries that serve as headquarters to multinationals over countries that serve as hosts for corporate operations, meaning that rich nations will likely reap most of the benefits of an eventual minimum tax agreement.

“By settling for anything less than a 25% tax rate, the G7 is telling their citizens and the world that they’re willing to keep the race to the bottom alive and kicking,” said Cobham. “Rarely does the opportunity to better the lives of billions of people in a single stroke come by, but when history came knocking today, the leaders of the richest countries in the world turned their back on it.”

“Even the G7 and OECD recognize that the international tax rules are unfit for purpose,” Cobham continued. “The disproportionate power exercised by these rich countries’ clubs today shows that the way international tax rules are determined, too, is unfit for purpose. It is now well past time for international tax rules to be set democratically at the U.N., starting with a U.N. tax convention.”

As the Washington Post reported Saturday, the Biden administration “initially floated a 21% global minimum tax but that rate was eventually lowered to 15%.”

“The lower rate will make it easier for countries to join the accord but may reduce its effectiveness,” the Post noted. “If the U.S. [corporate tax] rate is raised to 28% but the global minimum tax is 15%, firms may still have strong incentives to move their operations overseas.”

Zucman and other experts have emphasized that the proposed 15% global minimum tax is a floor and that governments can, and should, go higher.

“Let’s be clear: nothing prevents us [from moving] quickly to 25%, Zucman saidSaturday. “No need for a global agreement: the U.S. can tax its multinationals at 25%, France can do the same, etc. Tax havens cannot block a high minimum tax—because other countries can always choose to collect the taxes that tax havens choose not to collect.”

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  1. Noone from Nowheresville

    from a global policy perspective of respective governments (and ignoring the whole pay go BS), why would any government willing destroy their own money at the global level as opposed to the national or regional level (e.g., for general population control)?

    After all if they were truly worried about money or taxes, they would not have setup the system to distribute money, and by extension wealth, the way it’s distributed. Re-distribution back via taxes, it’s basically a bs pr distraction at this point and rather like trying to put the horses back in the barn after the barn has burned to the ground.

    1. Follow the Money

      I also expect nothing but a swiss cheese with so many loopholes that I would bet that you can even get tax returns from nations where you never paid taxes.

  2. Matthew G. Saroff

    I’d like to see criminal penalties, and the use of sanctions against countries which are clearly positioning themselves as predatory tax havens, Ireland, the Caymans, Bahamas, Panama, the British Virgin Islands, Delaware, Montana, South Dakota, Wyoming, etc. as well as sanctions against entities that facilitate the use of tax havens (80% of the City of London, etc.).

    Of course, this will not happen in my lifetime.

    1. vlade

      TBH, it won’t be neeed if it comes across.

      The idea is that you simply just top-up the tax, so a US company that wants to book its revenue via Ireland at 5%, fine. the US will just take extra 10% of that revenue in the US anyways – the only ones that will lose is Ireland.

  3. DJG, Reality Czar

    If this agreement is an international treaty, it goes to the U.S. Senate. Legal experts? I don’t see that it would go to the House of Representatives unless it is framed as a tax law, which it isn’t.

    And I see this within the article:
    –Olaf Scholz, the German finance minister, said Saturday that the G7 agreement—which must ultimately be approved by the U.S. Congress and the legislatures of other nations—is “very good news for tax justice and solidarity and bad news for tax havens throughout the world.”

    Ergo: Paging Joe Manchin, paging mavericky Kyrsten Sinema. I’m sure that this measure will get hung up in the U.S. Senate. Just having some suspicions.

    Where’s the parliamentarian? Surely the parliamentarian can find another snag.

    Meanwhile, liberals, who are the adults in the room, will lecture all of us on “compromise” and “bipartisanship.”

  4. The Rev Kev

    I always thought it an idea to pay tax on where any product or service is actually sold. So unless you are buying something while in an airplane over international waters or a boat at sea, that is where the tax is done. You buy a computer in Zambia? Fine, You pay the tax to the Zambian government. You purchase a service at your computer in the UK? Good. Pay Her Majesty’s Revenue and Customs then the tax owed. You order an item from overseas to be delivered to you in your own home in Cincinnati? Great. Now pay the IRS their taxes owing.

  5. PhilJ

    They also agreed to abolish “Digital service taxes” that are being implemented in countries like Indonesia and the UK. That might prove a serious win for US tech.

  6. lincoln

    Many corporations have a near zero tax rate because they transfer ownership of their intellectual property to a foreign subsidiary. This foreign subsidiary exists to collect royalties on every sale of the companies products in compensation for the right to use copyrights, patents, and trademarks associated with these products. Each subsidiary that sells a companies products can deduct these intellectual property royalty payments to zero out its taxable earnings from local sales, resulting in little taxable income reported in the country where a sale originates. This strategy effectively shifts most of the taxable income on a companies worldwide product sales to its foreign intellectual property subsidiary, which resides in a low tax jurisdiction.

    Another idea to prevent this might be to globally coordinate laws so that patents, trademarks, and copyrights are unenforceable unless the entity that owns this intellectual property, and collects its royalties, will recognize all its relevant taxable income in every jurisdiction where this IP is protected. Corporations then get to choose, patent protection or tax avoidance.

    But they can’t have both.

    1. Ian Ollmann

      That would just put the ones who seek patent protection at a competitive disadvantage to fast followers who seek to undermine it. The fast followers will have a structural price advantage, that they can use to fight off the patent lawsuits.

  7. vlade

    The problems here are definitions and any outs. As reported in the links, Amazon might have got an out because the proposal says the margin should be at least 10% (Amazon has 6.9%). But, creative accounting can make just about any profit or margin.

    So detail becomes very important here. On the other hand, if the proposal gets too wordy, it’s also a problem – more wordy = more specific = more potential loopholes.

    In other words, it can pass, it can even be 15% or whatever, but have no real impact.

    It will eliminate tax havens, but it could create accounting havens. How will they deal with that?

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