Following a two-day meeting in London hosted by the UK’s Chancellor Rishi Sunak, finance ministers from the G7 countries have published an agreement on working together to ensure a strong, sustainable global recovery post-COVID which commits to “a global minimum tax of at least 15% on a country by country basis”.

It should be noted that the 15% rate stated is not merely the rate of corporation tax, but is the effective tax rate which would be paid by corporates. Such an approach will need to be taken in parallel with progress on both Pillars 1 and 2 of the Base Erosion Profit Shifting (BEPS) project of the OECD nations.

The document reiterates support for the OECD inclusive framework on BEPS which has been in development for several years, agreeing that it was important to progress this new agreement in parallel with the two-pillar approach.

The G7, which comprises Canada, France, Germany, Italy, Japan, the UK and the US, commit to reaching an “equitable solution on the allocation of taxing rights”. The agreement states that market countries would be awarded “taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises”.

When enacted, they state that all pre-existing digital services taxes and other similar measures would then be removed.

The G7 will be hoping to reach an agreement at the July 2021 meeting of G20 Finance Ministers and Central Bank Governors.

While welcoming the agreement, Chief Executive of ICAEW, Michael Izza highlighted that it was just the first step.

“The Chancellor has called the G7 deal ‘historic’ and it’s hard to disagree with that. We welcome the progress that has been made on resolving the most pressing tax problem of our times. However, much remains to be settled – not least the wider adoption of this commitment, starting with the G20 in July and then the OECD,” he said.

“There will need to be a clear consensus worldwide that the headline minimum corporate tax rate of 15% will strike a fair balance between protecting the incentive to invest in and grow businesses and the need to rebuild public finances in the aftermath of the pandemic. If this can be achieved, it really could help create a fairer and more sustainable recovery for societies and economies around the world.”

Alongside setting out principles for a global approach to tax, the agreement also commits the countries to “properly embed climate change and biodiversity loss considerations into economic and financial decision-making”.

The G7 agree to move towards mandatory climate-related financial disclosures based on the Task Force on Climate-related Financial Disclosures framework, stating that investors need “high-quality, comparable and reliable information on climate risks”.

The ministers agree that there is a need for a baseline global reporting standard for sustainability and acknowledge the efforts of the IFRS in this area. It suggests consultation on a final proposal leading to the establishment of an International Sustainability Standards Board ahead of COP26 in November 2021.

Read more:

• The G7 communique on tax in full
• The OECD inclusive framework on BEPS
• Statement from OECD Secretary-General Mathias Cormann on the outcome of the G7 Finance Ministers’ Meeting
• OECD initiative on international corporate taxation (TAXline, March 2020)
• Domestic digital services taxes put pressure on OECD proposals (Insights, December 2020)