The G7 group of wealthy nations have signed a landmark deal to tackle tax abuses by some of the world’s biggest multinationals and establish a minimum global corporation tax for the first time.
Finance ministers from the world’s richest economies agreed the historic deal on Saturday as part of talks held in London, the chancellor, Rishi Sunak, said.
As part of the plan, finance ministers also agreed to the principle of a global minimum rate that ensures multinationals pay tax of at least 15% in each country in which they operate.
Sunak said: “These seismic tax reforms are something the UK has been pushing for and a huge prize for the British taxpayer – creating a fairer tax system fit for the 21st century.
“This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.”
He said countries had agreed a separate pledge to follow the UK lead in making climate reporting mandatory, and agreed “measures to crack down on the proceeds of environmental crimes”.
The agreement, which reverses several decades of beggar thy neighbour policies, is aimed at multinationals that have played one country against another to drive down the level of tax they pay.
Hosted by the UK chancellor, the summit of finance ministers is expected to give further details of the framework for a scheme that will force the world’s biggest companies to pay more tax in countries where they do business as well as where they are headquartered.
Digital businesses such as Amazon, Google and Facebook, which have built huge businesses across the world while only declaring relatively small profits in each country, will also be caught by the agreement.
G7 leaders hope the agreement will be endorsed by the G20 group of nations, which includes China, Russia, South Africa and Saudi Arabia, later in the year.
More than 130 countries are participating in a parallel exercise to agree a global tax framework as part of a deal put together by the Paris-based Organisation for Economic Cooperation and Development (OECD), which is expected to follow the lead set by the G7 at meetings in October.
Aid charities said governments had allowed corporations to escape paying taxes for too long, denying exchequers the funds needed to tackle health crises, such as the Covid-19 pandemic.
Barriers to a deal remain, especially in the US, where the deal must be passed into law by both houses of Congress.
However, Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and a former chief economist at the International Monetary Fund, said an alliance of Democrats and Republicans upset at the treatment of former president Donald Trump by Facebook and Twitter, could come together to endorse the deal.