In a major victory for both the Biden administration and the G7, global finance ministers agreed in London today (5 June) to a minimum global corporate tax rate of at least 15 per cent.
Britain’s Chancellor of the Exchequer Rishi Sunak, who has pledged to increase the UK rate from 19 per cent to 25 per cent by 2023, called the deal a “historic agreement.” Germany hailed it as “good news for justice and fiscal solidarity”.
The agreement is a crucial political and moral victory. Joe Biden and US Treasury secretary Janet Yellen emphasised far in advance that they wanted such a deal to halt the global “race to the bottom” on taxation that has prevailed since the Reaganite 1980s. That the G7 finance achieved this aim – something Japan had warned was unlikely – is a triumph for the Biden team, which wants to raise the US corporate tax rate from 21 per cent to 28 per cent to help fund its ambitious $2trn infrastructure programme.
But it isn’t only the new US administration that proved a point. Ahead of the meeting and next week’s summit of G7 leaders in Cornwall, some had questioned whether the body still had relevance. That an agreement was achieved suggests that such institutions can still deliver meaningful change.
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And a minimum global tax rate would indeed be meaningful. As the finance ministers of France, Germany, Italy, and Spain declared in a statement on Friday, “Just because their [multinationals’] business is online doesn’t mean they should not pay taxes in the countries where they operate and from which their profit derives. Physical presence has been the historical basis of our taxation system. This basis has to evolve with our economies gradually shifting online.”
The G7 finance ministers have taken a step towards reshaping the economic system along more equitable lines – exactly the kind of ambitious multilateralism that can and should be pursued at such summits.
There is still a significant distance to travel. The precise details still need to be negotiated and the agreement will also need to be approved at the G20 meeting of finance ministers in Venice in July. That summit, unlike the G7, will include India and China. And some changes might require Senate approval, where the Democrats have only the narrowest of majorities and where Republicans have already started to signal their opposition.
But the deal is a large and significant first step towards addressing one of the main complaints about global capitalism: that states compete to be the easiest place to do business without taking into account the deleterious social and environmental consequences.
G7 finance ministers also agreed that beneficial ownership registries – a requirement for corporations to disclose who actually owns and benefits from their activities – are essential to tackling illicit finance, and vowed to implement and strengthen them. This, too, is a win for the Biden administration, which has pledged to lead the fight against kleptocracy and corruption.