The agreement seeks to create a level playing field for companies around the world but critics argue the 15 percent minimum rate is too low.

Finance ministers from across the G7 nations meet at Lancaster House in London, UK, June 5, 2021.
Finance ministers from across the G7 nations meet at Lancaster House in London, UK, June 5, 2021. (AP)

Group of Seven rich nations have agreed to commit to a global minimum tax of at least 15 percent on a country by country basis.

"We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20 percent of profit exceeding a 10 percent margin for the largest and most profitable multinational enterprises," a communique from G7 finance ministers seen by Reuters said on Saturday.

"We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies."

The agreement will create a level playing field for companies around the world, British finance minister Rishi Sunak said.

He added that the need for national digital services taxes would fall away once the global solution is in place.

"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," he told reporters.

Sunak on Friday chaired the first of two days of meetings, held in person after an easing of Covid-19 restrictions and attended by counterparts from Canada, France, Germany, Italy, Japan and the United States.

The talks were preparing the ground for a broader summit of G7 leaders in Cornwall, southwest England starting on June 11.

US President Joe Biden is set to attend on his first foreign tour since taking office in January.

READ MORE: The US wants to tax multinationals, but who benefits?

Throttling multinationals rise in profits

Momentum is growing behind the US-led plans to limit the ability of multinationals like tech giants to game the system to boost profits, especially at a time when economies around the world are reeling from the impact of the coronavirus pandemic.

"Before the crisis, it was difficult to understand," a European source told AFP. "After the crisis, it is difficult to accept."

Corporate tax is one of two pillars in efforts for global fiscal reform, the other being a "digital tax" to allow countries to tax the profits of multinationals headquartered overseas.

"It is increasingly clear that in a complex, global, digital economy, we cannot continue to rely on a tax system that was largely designed as in the 1920s," Sunak said in opening remarks.

"And I would just say this: the world has noticed. And I believe they have high expectations for what we all can agree over the coming days."

According to a draft communique seen by AFP, ministers also plan to commit to "sustain policy support", or stimulus, for "as long as necessary" to nurture economic recovery, while addressing climate change and inequalities in society.

Furthermore, they will urge "equitable, safe and affordable access to Covid-19 vaccines" everywhere.

The thorny topic of the regulation of digital currencies such as bitcoin will also be on the agenda.

READ MORE: Will the push to tax the super-rich work?

Is 15 percent too little? 

Biden has called for a unified minimum corporate tax rate of 15 percent in negotiations with the Organisation for Economic Co-operation and Development (OECD) and G20, winning support from countries such as France and Germany, as well as the International Monetary Fund..

Ireland has expressed "significant reservations" about Biden's plan, however. Its 12.5-percent tax rate is one of the lowest in the world, prompting tech giants such as Facebook and Google to make Ireland the home of their European operations.

The UK-based anti-poverty organisation Oxfam argued that Biden's proposal of 15 percent was too little, with the charity's senior policy officer for France, Quentin Parrinello, telling AFP an agreement without a specific rate "would be a real failure".

Proponents argue that a minimum tax is necessary to stem competition between countries over who can offer multinationals the lowest rate.

They say that a "race to the bottom" saps precious revenues that could go to government priorities like hospitals and schools.

Britain wants multinationals to pay taxes that reflect their operations, as nations across the world seek to repair virus-battered finances.

Governments worldwide have suffered massive falls in tax receipts during Covid lockdowns, while at the same time having to borrow vast sums to prop up their economies.

READ MORE: US state proposes wealth tax on billionaires

Source: TRTWorld and agencies