Member countries of G7 agreed on how to modify the international tax regime to squeeze some money out of big multinationals, including Google and Facebook, according to the French hosts of a meeting with finance ministers and central bankers.
“Ministers agreed that it is urgent to address the tax challenges raised by the digitalization of the economy and the shortcomings of the current transfer pricing system,” revealed a French summary of the summit’s conclusions.
US Treasury Secretary Steven Mnuchin said that the meeting yielded significant progress, but added there is still work to be done. He stated that big tech is accused by many European countries of not paying enough taxes in the countries where they operate because they can operate in low-tax jurisdictions, differently from traditional businesses with national headquarters and large numbers of local employees.
The new laws will be perfected in continuing negotiations at the OECD to address new business models, in particular, “those creating value with no physical presence, notably highly digitalized business models”, said the G7 meeting summary.
France’s attempt to target big tech companies, most of them American, created friction with the US government and the Trump administration is retaliating against the new law that imposes a 3 percent turnover tax on tech-related multinationals.
Mr. Mnuchin said his government would continue to carry on the Section 301 investigation ordered by Trump on France’s move and implemented by Robert Lighthizer while promoting a multilateral agreement through the OECD.
“We don’t have a solution,” he said. “We’re beginning to develop a framework. We feel very strongly that this should not just be geared at the US digital companies.”
European officials said that they are satisfied with the plans to make the companies with a global economy or small physical presence – tech groups specifically – pay a proportionate tax on-site if it generates significant revenues on its citizens’ data. “It’s a real advance for fairer tax for the 21st century,” said finance minister Bruno Le Maire. “It’s the first time that members of the G7 agree on this principle.”
The UK and Spain are also setting up national taxes. The G7 also agreed on the idea of a global minimum corporate tax rate to ensure that big multinationals do not export capital to tax havens or low-tax jurisdictions, depriving the countries where they do their business of important tax revenues.