Following on from the G7 Finance Ministers meeting on 3–5 June where a political announcement on global taxation was made, the G7 leaders’ Summit took place in mid-June. The G7 leaders endorsed the global minimum tax rate of at least 15 percent and will seek to reach consensus on the proposals through working with the G20 and the OECD in July.

At the meeting of the G7 Finance Ministers, the principles of the two Pillar global solution to tackle the tax challenges arising from the digitalisation of the global economy were agreed. Under Pillar One, large multinationals will be required to pay tax in the countries where they operate – and not just where they have their headquarters. Under Pillar Two, the G7 agreed to the principle of a global minimum corporation tax rate of at least 15 percent.

Chairing the G7 Finance Ministers meeting in London, Rishi Sunak said “These seismic tax reforms are something the UK has been pushing for and a huge prize for the British taxpayer – creating a fairer tax system fit for the 21st century. This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.”

Pillar One

The Finance Ministers agreed to the principles of the OECD’s two Pillar proposals. Under Pillar One, the largest and most profitable multinationals will be required to pay tax in the countries where they operate – and not just where they have their headquarters. The rules would apply to global firms with at least a 10 percent profit margin – and would see 20 percent of any profit above the 10 percent margin reallocated and then subjected to tax in the countries they operate.

This will mean more tax for countries with big markets and less for countries like Ireland where international headquarter operations are based. The potential cost to the Irish Exchequer is an estimated €2.2–€2.4 billion, around one fifth of total corporate tax revenue.

Pillar Two

Under Pillar Two, the G7 also agreed to the principle of at least 15 percent global minimum corporation tax operated on a country-by-country basis.

Minister for Finance, Paschal Donohoe, said he would continue to argue for Ireland’s 12.5 percent corporate tax rate in negotiations with EU Member States and the Unites States.

US Treasury commentary

In a press release from the US Department of the Treasury following the G7 meeting, they have stated their support for the 15 percent global minimum tax rate and to the Pillar One proposals. The press release also states that the US will provide appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes.

The Communiqué issued by the G7 leaders stated the following in relation to tax:

“We need a tax system that is fair across the world. We endorse the historic commitment made by the G7 on 5 June. We will now continue the discussion to reach consensus on a global agreement on an equitable solution on the allocation of taxing rights and an ambitious global minimum tax of at least 15 per cent on a country-by-country basis, through the G20/OECD inclusive framework and look forward to reaching an agreement at the July meeting of G20 Finance Ministers and Central Bank Governors. With this, we have taken a significant step towards creating a fairer tax system fit for the 21^st century, and reversing a 40-year race to the bottom. Our collaboration will create a stronger level playing field, and it will help raise more tax revenue to support investment and it will crack down on tax avoidance.”

On 1 July, 130 members of the Inclusive Framework’s 139 members signed up to the two Pillar proposal. Ireland is one of the nine members not to sign the agreement.

The remaining elements of the framework, including the implementation plan, will be finalised in October.