Biden administration’s global tax plan gets G7 backing

 On Saturday, the ongoing G7 summit in London backed Biden administration’s efforts to tweak international tax rules in order to discourage American companies from gaining huge earnings abroad. The London summit on Saturday was attended by finance ministers from seven nations of Group of 7 – Canada, US, Germany, France, Italy, Japan and the UK. The G7 backed global minimum tax of at least 15% on multinational companies. They also agreed on big companies paying tax in nations where they generate sales and not just where they are physically present.

The Saturday meeting was also attended by the US Treasury Secretary Janet Yellen. The agreement was announced on Twitter via video posted by UK Finance Minister Rishi Sunak who said the G7 nations had “reached a historic agreement to reform the global tax system to make it fit for the global digital age and, crucially, to make sure that it’s fair so that the right companies pay the right tax in the right places.”

Yellen, who sought G7 approval on Biden administration’s efforts for the rewriting of global tax rules called the agreement a “significant, unprecedented commitment”.  Yellen wrote in a statement, “The G7 Finance Ministers have made a significant, unprecedented commitment today that provides tremendous momentum towards achieving a robust global minimum tax at a rate of at least 15%.”

“That global minimum tax would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world,” Yellen said while adding that the tax would also level “the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our work forces and investing in research and development and infrastructure.”

The major global companies that would be impacted by this agreement include Google, Facebook and Twitter. Many countries have come up with changed tax laws targeting greater tax generation from these companies after much debate that these firms must pay more in taxes. Nick Clegg, Facebook’s vice president for global affairs said, “We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places.” Google too supported the tax reforms globally. Amazon spokesperson said, “We believe an OECD-led process that creates a multilateral solution will help bring stability to the international tax system. The agreement by the G7 marks a welcome step forward in the effort to achieve this goal. We hope to see discussions continue to advance with the broader G20 and Inclusive Framework alliance.”

The agreement is a big win for Biden’s administration and a clear showcase of its ability to build consensus. It is especially crucial ahead of the G7 leaders summit next week in Cornwall.