The G20 finance ministers on Saturday endorsed a global tax reform to impose a 15% minimum tax on large multinational corporations such as technology giants Google, Amazon, Facebook and Apple who do business in several countries but register their corporate offices in nations with very low tax rates.
The reform also entitles countries, like India, a fair share of the taxes on profits earned by these multinational giants in their territory.
Finance Minister Nirmala Sitharaman, who participated virtually in the two-day G20 meeting, suggested that “further work needs to be done to ensure a fairer, sustainable and inclusive tax system which results in meaningful revenue for developing countries.”
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The endorsement of the new rules aimed at preventing multinational giants shifting profits to low-tax havens comes as a major breakthrough and paves the way for G20 leaders to finalise a new global minimum corporate tax rate at a summit to be held at Rome in October.
According to OECD estimates, an effective 15 percent tax rate would generate an additional revenue of $150 billion globally every year.
The move for the global tax reform to check tax avoidance by MNCs has been in the works for several years but has gained momentum after Joe Biden took over as US President.
Over 130 countries have already endorsed the international tax reform. But the backing by the G20, which includes the 20 biggest economies in the world, will help ensure that the step reaches its logical conclusion.
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"We have achieved a historic agreement on a more stable and fairer international tax architecture," the finance ministers said in a final communique after the talks in Venice, hosted by G20 president Italy.
"We endorse the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax."
The final agreement is expected ahead of the G20 leaders' summit in Rome in October, so that the reforms can be implemented by 2023.
In their final statement, the G20 ministers invited more countries to sign up for the tax reform.
Some countries such as Ireland with low tax rates are opposed to the reform as large corporates like Apple and Google are registered in their territory, enabling these nations to rake in easy revenue.
US Treasury Secretary Janet Yellen, among those attending the grouping's first face-to-face meeting since the pandemic began, said, "The world is ready to end the global race to the bottom on corporate taxation and should now move quickly to finalise the deal."
She said any countries opposed to it would be encouraged to sign up by October. "We'll be trying to do that, but I should emphasise it's not essential that every country be on board." She also pointed out that the deal included mechanisms against the use of tax havens anywhere.
