The G7 Finance Ministers (i.e. Canada, USA, UK, France, Italy, Japan, Germany and EU representatives) on June 5th 2021, concluded a landmark international agreement on a global tax reform.
G7 representatives agreed on the principles of a two-pillar global solution to face challenges resulting from globalization and the digitization of the global economy. Under the first pillar, the largest and most profitable multinational corporations shall be required to pay taxes in the countries where they do business - not just those where they have their registered offices. The new rule is planned to apply to global entities that realize at least a 10% profit margin. Then, 20% of the income obtained in excess of the aforementioned margin is going to be relocated and taxed in the country of establishment.
As part of the second pillar of the G7 agreement, finance ministers also agreed to introduce a minimum global CIT rate of not less than 15%. According to the representatives of the G7, thanks to such a solution, domestic companies will have a more equal chances. Additionally, the introduction of the agreement would contribute to facilitating the process of eliminating tax avoidance.
In addition to the above-mentioned tax reforms, the G7 agreement also aims at obligatory reporting on the climate impact of companies' investment decisions, which in turn is to translate into determining and utilising measures to combat environmental crime.
This G7 agreement was welcomed by the Secretary General of the Organization for Economic Co-operation and Development (hereinafter: ‘OECD’) - Mathias Cormann, who stressed that:
"Governments around the world must be able to raise the necessary revenues to finance basic public services, in a way that is effective and as least burdensome as possible, while respecting the principles of fairness and equality. […] The agreement between the G7 finance ministers is a landmark step towards the global consensus needed to reform the international tax system.”
The new G7 agreement is a coordinated response to the unilateral solutions undertaken by individual countries aimed at taxing mainly digital (technological) tycoons who are able to generate significant revenues without physical presence in the traditional sense of the word. Notably, on the 7th July 2021, the Polish legislator has already announced the first reading of the parliamentary draft act on taxing certain digital services and the Digital Technologies Fund.
Further steps to create a common taxation model for multinational corporations will be continued by the Finance Ministers and Central Bank Governors during the G20 summit scheduled for July 2021.