Following two days of talks in London with G7 finance ministers, Chancellor Rishi Sunak announced the group had agreed a corporation tax rate of “at least 15 percent”. But the groundbreaking agreement risks being scuppered by some smaller EU states, despite the backing of France and Germany.
Ireland, Cyprus and Hungary are among those who could potentially veto the decision when the EU27 vote on it.
Paschal Donohoe, Ireland’s finance minister, urged caution.
He wrote on Twitter after the communique emerged: “There are 139 countries at the table, and any agreement will have to meet the needs of small and large countries, developed and developing.
“It is in everyone’s interest to achieve a sustainable, ambitious and equitable agreement on the international tax architecture.”
Cyprus and Hungary have also stressed their opposition to a minimum corporate tax rate.
Hungary had originally proposed a 9 percent tax rate.
Cyprus Finance Minister Constantinos Petrides said yesterday a decision by the G7 to impose the global minimum tax does not seem to directly affect his country.
He insisted Cyprus would safeguard its interests and that those of smaller EU member states needed to be acknowledged and taken into consideration.
Cyprus’s tax rate is 12.5 percent but Petrides said its effective taxation was higher than 15 percent.
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Mr Petrides said: “The G7 decision is indeed a breakthrough, which however does not seem to directly affect Cyprus.
“Cyprus is an open economy and a competitive destination, based on its own merits, and will exhibit a constructive spirit at the discussions at EU level.
“At the same time, it will safeguard its interests and the sustainability of the economy. The small EU member states’ interests should be acknowledged and taken into consideration.”
According to the G7 agreement, changes will also be made to ensure major corporations, especially those with a strong online presence, will pay taxes in the countries where they operate and not only where they have headquarters.
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The new policy is thought to be aimed at the likes of tech giants Amazon and Microsoft.
Speaking after a meeting at Lancaster House, the Chancellor said: “I am delighted to announce that today, after years of discussion, G7 finance ministers have reached a historic agreement to reform the global tax system.
“To make it fit for the global digital age, but crucially to make sure that it is fair so that the right companies pay the right tax in the right places and that’s a huge prize for British taxpayers.”
Mr Sunak said he was “proud” of his colleagues, with Japan, Canada, France and Italy also part of the group, for working together to produce a deal that “finally brings our global tax system into the 21st century”.
Explaining the agreed tax reforms, a Treasury spokeswoman said: “Under pillar one of this historic agreement, 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.
“The fairer system will mean the UK will raise more tax revenue from large multinationals and help pay for public services here in the UK.”
The Chancellor said there had been “huge progress” on an issue that had been discussed for almost a decade.
The agreement is due to be pored over in further detail at the G20 financial ministers and Central Bank governors meeting in July, the Treasury confirmed.
Assuming the G20 leaders approve the proposal by July 9, the EU Commission will then have six months to prepare an EU tax bill that will need the unanimous approval of the EU27.