Group of 20 (G20) finance ministers on July 10 gave their backing to a historic deal to overhaul the way multinational companies are taxed, and urged hold-out countries to get on board.
Some 132 countries have already signed up to a framework for international tax reform, including a minimum corporate rate of 15 per cent, struck earlier this month.
But the endorsement by the 19 biggest economies plus the EU will help ensure it becomes a reality following years of negotiations.
“We have achieved a historic agreement on a more stable and fairer international tax architecture,” the ministers said in a final statement following two days of 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.”
US Secretary of the Treasury Janet Yellen, among those attending the grouping’s first face-to-face meeting since February last year, said the momentum must not now be lost.
“The world is ready to end the global race to the bottom on corporate taxation,” she said in a statement, adding that it “should now move quickly to finalise the deal”.
French finance minister Bruno Le Maire said it was a once-in-a-century opportunity for a “tax revolution”, adding: “There is no turning back.”
His German counterpart, Olaf Scholz, tweeted: “Finally, large corporations can no longer escape their tax liability.”
The reforms aim to prevent countries competing to offer the lowest tax rates to attract investment, which has often resulted in multinationals paying derisory levels of tax.
Final agreement is expected in the run-up to the G20 leaders’ summit in Rome in October, with hopes the reforms can be in place by 2023.
Countries including the US, France and Germany have been pressing for a higher minimum tax rate.
But some nations are opposed to 15 percent, including Ireland, which lured Apple and Google to Dublin with low tax rates.
In their final statement, the G20 ministers “invite” countries to sign up.
Without the agreement of Ireland and other EU hold-outs Hungary and Estonia, the EU cannot implement the deal.
And while hailing an “unprecedented agreement”, EU economic affairs commissioner Paolo Gentiloni warned: “Our work is not done.”
NGOs that analyse the tax affairs of multinationals, like Oxfam, have criticised the reform for letting rich countries keep most of the extra tax revenue.
Indian finance minister Nirmala Sitharaman, who attended the Venice talks remotely, said that “further work needs to be done to ensure a fairer, sustainable and inclusive tax system which results in meaningful revenue for developing countries”.
Italian finance minister Daniele Franco said what had been achieved must not be underestimated.
“To have worldwide rules for taxing multinationals, for taxing profits of big companies is a major change, it’s a major achievement,” he said.
The minimum tax rate is expected to affect fewer than 10,000 major companies, but the Organisation for Economic Cooperation and Development (OECD) estimates an effective 15 per cent rate would generate an extra $150 billion in revenue per year.
The measure is one of two so-called pillars of global tax reform that have been under negotiation for years, and were given new impetus under US President Joe Biden.
The other would give countries a share of the taxes on profits earned in their territory.
Multinationals operate in many countries but usually pay taxes on profits only in tax domiciles cherry-picked for their low rates.
The profit reform would initially apply to the top 100 or so companies, and is targeted at the most aggressive users of tax-reducing domiciles, such as technology giants Google, Amazon, Facebook and Apple.
The changes agreed will ensure “that the right companies pay the right tax in the right places”, British finance minister Rishi Sunak told AFP.
The G20, whose members represent about 85 per cent of global wealth, also discussed the post-pandemic recovery.
Ministers warned that the global recovery was uneven and “exposed to downside risks, in particular the spread of new variants of the Covid-19 virus and different paces of vaccination”.
They backed an initiative by the International Monetary Fund (IMF) to increase aid to countries struggling to cope with the pandemic through special drawing rights – international reserve assets – saying it must be implemented “by the end of August”.