The G7 finance ministers’ agreement may not be perfect but it bodes well for global collaboration, writes RUSSELL DALGLEISH
As anticipated the G7 Finance Ministers duly agreed upon a minimum corporation tax of 15% for large multinationals. It was not the 21% initially suggested by the Biden administration and it is, of course, a rate lower than that currently in place in all G7 countries. Even so it is a move which will have ramifications for many. More to the point, it may signal a new mood of global collaboration.
Tax harmonisation across the world’s richest nations – the United States, Germany, Canada, Japan, Italy, France, and the UK – has proved incredibly complex and there are details and shortcomings in this deal that will need to be resolved. However, the additional taxes raised through this agreement could exceed $50 billion of much needed tax revenues as government pay down borrowings required to fund COVID efforts.
There are several drivers behind the deal, but the key goal is that companies should pay taxes within the countries where their profits have been made, rather than declaring it in those with the lowest tax rates, with a clear intention to target the technology giants whose profits have risen in part by our growing commitment to their services during the time of COVID and lockdown, while their tax payments remain low.
As Rishi Sunak, the UK Chancellor, stated, it was a “historic agreement to reform the global tax system to make it fit for the global digital age.”
The actual agreement will be formally endorsed at the broader G20 gathering in Italy later this year though there is concern that setting the minimum level of corporation tax at 15% is too low to have a real affect. Ireland, for instance, has used its low corporation tax rate to attract major investment.
Looking beyond these issues I believe we will witness more of these types of agreements where countries agree to work together across multiple jurisdictions to address global issues as “one planet”, such as climate change and the development and distribution of vaccine development.
On the climate crisis there is more to come and more to gain if this collaboration continues. For large companies there is a proposal that mandatory requirements be placed on corporations to disclose details of their exposure to climate risk. This could become part of any “Glasgow Accord” agreed at the COP26 gathering in Scotland in November.
More on this will emerge rom the G7 leaders gathering in Cornwall this weekend when wee hope to hear if the gathering delivers on Prime Minister Boris Johnson’s goal of using the UK’s Presidency to “unite leading democracies to help the world fight, and then build back better from coronavirus and create a greener, more prosperous future.”
Russell Dalgleish is co-founder and chairman of Scottish Business Network