Finance Minister Chrystia Freeland said on Saturday that an agreement reached by the Group of Seven (G7) countries on taxing multinational corporations and setting a global minimum corporate tax rate was only ‘a first step towards a global agreement.

She also said the Liberal government still intends to move forward with a three percent digital services tax announced in last month’s federal budget that is expected to take effect next year, under subject to any international agreement.

The first “pillar” of the deal announced on Saturday would give countries in which large multinationals exercise corporate tax rights at least 20 percent of any profit above a 10 percent margin. The second pillar consists of setting an overall tax floor of 15% for companies, implemented country by country.

“Multinational companies need to pay their fair share of taxes. Jurisdictional shopping allows them to avoid doing that,” Freeland said on a call with reporters on Saturday, referring to business and accounting practices that shift profits to low tax countries.

Key questions remain, in particular which multinational companies will be covered by the new first pillar rules and how the new taxed profits will be distributed among the affected countries.

Tax on digital services still foreseen

Freeland told reporters the government still intends to move forward with the digital services tax it announced in April. At the time, it was a step forward as multilateral agreements were being negotiated, and Freeland said she hoped domestic and international policies could “fit together.”

The communiqué approved by G7 finance ministers noted that work needed to be done to reconcile existing national digital tax measures and future international agreements.

“We will ensure appropriate coordination between the application of the new international tax rules and the elimination of all taxes on digital services, and other relevant similar measures, on all businesses,” the statement said.

US Treasury Secretary Janet Yellen said European countries will remove existing taxes on digital services that the US says discriminate against US businesses as new global rules come into effect .

U.S. Treasury Secretary Janet Yellen, presented in December 2020, said European countries would remove existing taxes on digital services that the U.S. says discriminate against U.S. businesses as news global rules come into effect. (Leah Millis / Reuters)

When asked on Saturday whether the new rules would cover America’s major tech giants, Yellen said the new regime “will include large profitable companies, and I think those companies will qualify by almost any definition.”

“It’s not something we can do on our own”

Freeland was careful to present Saturday’s announcement as an “agreement” or “position” rather than an agreement, explaining that it was an important first step towards a global compact.

The G7 position will now have to be presented to a meeting of the G20 countries next month, followed by an ongoing dialogue led by the Organization for Economic Co-operation and Development (OECD) involving more than 125 countries.

“Canada recognizes – and I believe all of my G7 partners recognize this as well – that this is not something we can do on our own. We weren’t dreaming about it, ”Freeland said.

But the finance minister did not say whether or how the G7’s position might change when it is presented to a wider international audience.

Freeland goes to a press conference before presenting the federal budget in Ottawa on April 19. The budget included the government’s plan for a three percent digital services tax. (Adrian Wyld / The Canadian Press)

“The communiqué that was released by the G7 today reflects well all of Canada’s positions,” she said, stressing that changes to a minimum tax and the tax base must work together.

The ministerial counterpart of Freeland in Ireland, which has a corporate tax rate of 12.5%, stressed that the conversation should continue beyond the G7 until the ongoing dialogue organized by the Cooperation Organization and economic development and the G20.

“There are 139 countries around the table, and any deal will have to meet the needs of countries large and small, developed and developing,” said Paschal Donohoe.

“There is still important work to be done”, says OECD Secretary General

Allison Christians, a professor of tax law at McGill University, said the G7 deal was not in the spirit of a multi-year process led by the OECD, known as the Inclusive Framework.

“The past 10 years have been spent building a more inclusive body where what other countries think matters,” she said on Saturday. “What is historic is that the seven richest nations in the world dictate what the tax system will look like for everyone else.

But Christians have said that even if the process is “unfair,” it is unlikely by itself to defeat a global deal. “The world we live in is the one where the G7 controls these rules,” she said.

Mathias Cormann, who was sworn in as the new OECD secretary-general last week, said the G7 announcement was a “historic step” towards tax reform, but that “important work remains to be done. make”.

Mathias Cormann, pictured in 2018 as Australian finance minister, is the new secretary general of the OECD, which is leading a major international initiative on tax reform. (Mark Graham / AFP / Getty Images)

David Duff, professor of law and director of the tax program at the University of British Columbia’s law school, disagreed that this was the G7 making rules on the rest of the world.

“I think this is just one step in the whole process, I don’t think they anticipated it. All they said was they agree and obviously for that to happen, it has to be a larger group, “he said.

Duff said it was unlikely that there would be any major changes to the structure of the “pillars” referenced in the agreement in subsequent discussions with a larger international group. But he noted that there could be negotiations over the details, including which companies are covered.

Duff also said that beyond the challenge of getting the rest of the world to sign, there was the issue of the corresponding national law. “How it will work, translating everything into national legislation will be a challenge,” he said.

Big companies react

Google said on Saturday it “strongly supports” the work underway to update international tax rules.

“We hope that countries will continue to work together to ensure that a balanced and lasting deal is soon finalized,” Google spokesman Jose Castaneda said in an emailed statement.

Facebook has said it expects to have to pay more taxes in more countries as a result of the deal.

“We want the international tax reform process to be successful and recognize that this could mean Facebook is paying more taxes, and in different places,” Facebook vice president for global affairs Nick Clegg said.


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