On Friday, President Joe Biden and G-7 leaders will publicly endorse a worldwide minimum corporate tax of at least 15%, as part of a broader accord to reform international tax laws for a globalised, digital economy.

The leaders will also reveal a plan to replace the Digital Services Tax, which targeted the largest American digital companies, with a new tax scheme based on where multinationals do business rather than where they are headquartered.

 

The Biden administration sees the Global Minimum Tax as a concrete step toward its objective of building a "foreign policy for the middle class."

 

This policy seeks to ensure that globalisation and trade are used to benefit working Americans rather than billionaires and international corporations.

The GMT is designed to put a halt to the tax-cutting arms race that has driven some countries to cut corporate taxes far lower than others in order to attract multinational corporations.

 

If broadly adopted, the GMT would effectively put an end to the practice of multinational firms relocating their headquarters to low-tax countries such as Ireland and the British Virgin Islands, despite the fact that their customers, operations, and executives are situated elsewhere.

The second big effort that Biden and the G-7 leaders will announce on Friday is a pledge to “actively consider” increasing the International Monetary Fund's supply of Special Drawing Rights, an internal IMF currency that is available to low-income nations.

According to a White House fact sheet, this proposal aims to increase international development funds to poor countries, allowing them to obtain Covid vaccinations and recover more swiftly from the pandemic's consequences.

 

The G-7 leaders will also commit to “continue providing policy support to the global economy for as long as required to build a strong, balanced, and inclusive economic recovery,” according to the White House.

However, it is the GMT strategy that has the most ability to affect company bottom lines and investor decisions.

The G-7 tax agreement “will serve as a springboard to achieving larger agreement at the G-20,” according to a senior administration official who spoke to reporters on the condition of anonymity in order to discuss ongoing negotiations.

 

A joint statement issued Thursday by Biden and British Prime Minister Boris Johnson provides a glimpse of what to expect from the G-7 partner nations' global tax deal.

We commit to establishing an equitable solution for the allocation of taxation rights, with market countries receiving taxation rights on at least 20% of profit over a 10% margin for the largest and most profitable multinational enterprises,” the statement states.

“We also pledge to levy a worldwide minimum tax of at least 15% on a country-by-country basis.”

 

As part of this agreement, “we will provide for... the elimination of all Digital Services Taxes, as well as other applicable equivalent measures, on all companies.”