Historical G7 agreement establishes the foundations of a new international tax order
By Scharlack PLLC
The countries that form the G7 – United States, United Kingdom, France, Germany, Italy, Japan, and Canada – reached last Saturday (06/04/2021) an agreement which shall be the foundation of pillars 1 (taxation of part of the profits of multinational groups by the countries hosting the consumer market for their digital products and services, in substitution to the digital services taxes many countries have unilaterally created) and 2 (creation of a global minimum income tax, at a 15% rate, similar to the American GILTI and BEAT) of a new international tax order.
The next step is to extend this agreement to the G20 countries – including Russia, China, India, and Brazil – in July in order to expand negotiations within the OECD in October.
Under new administration, the United States (U.S.) adhered to the negotiations in an active and positive way, contrary to what they did during the prior administration. To understand why the U.S. tax system provoked the wave of negotiations leading to Pillar 1 and why the U.S. was inconsistent to oppose it, check out the article “The TCJA’s Unilateral Provocation of DSTs”, by Benjamin Willis and Rubens Scharlack. Last Saturday, U.S. Treasury Secretary, Janet Yellen, celebrated the historical agreement and considered it an example of what multilateral negotiations can achieve.
Details of the agreement have not yet been reported and it is likely that most of its aspects still need to be established within the G7, G20, or even the OECD itself. One estimates that configuring both pillars of the new international tax order may still take years, but a very important piece of the board was moved last weekend, with consequences to virtually all countries.