The G7 reached a landmark deal on Saturday to pursue higher global tax rates on multinational businesses but the measures need broader support including an EU resolution, with retractors including Cyprus where Amazon recently registered a company.
With hundreds of billions of dollars at stake as governments around the world seek money to deal with the COVID-19 aftermath, the G7 on Saturday agreed to back a minimum global corporate tax rate of at least 15%.
The Group of Seven - US, UK, France, Germany, Italy, Japan, and Canada - doesn't have the power to establish the new taxation framework but foreign observers say the move could provide political momentum ahead of a G20 meeting in July.
Last month Amazon submitted an application to register a company in Cyprus, following rumors that the multinational had its eye on the island nation for favorable tax policies
A higher global taxation on multinational businesses would affect Google, Facebook, Apple, and Amazon, with the latter having lower profit margins than most other tech companies.
The deal has been years in the making and promises to end national digital services taxes levied by Britain and other European countries, with Washington saying US technology giants were unfairly targeted.
Many European countries, who had been had been concerned with an earlier draft, were satisfied with the latest proposals that could alleviate fears over companies escaping extra taxation.
Cyprus opposes global minimum corporate tax
But there are some serious retractors including the Republic of Cyprus and Ireland.
Last month, Amazon submitted an application in Cyprus to register Amazon Data Services Cyprus Ltd. The news did not come entirely unexpected, as rumors in the media had suggested Amazon had its eye on the island nation for favorable tax policies.
Cyprus says it is in favor of keeping a policy of setting tax rates under national competency, maintaining a level of corporate tax rate suitable for the sustainable development of the economy and investments.
Ireland has already successfully recruited global companies including big US tech firms by offering a corporate tax rate of just 12.5%. Irish finance minister Paschal Donohoe said any global deal also needed to take account of smaller nations.
Foreign observers said Ireland would be expected eventually to come on board and agree to the global effort.
But Cypriot finance minister Constantinos Petrides has not explicitly said whether Cyprus would veto an EU resolution backing Biden’s plan.
"Bad news for tax havens around the world"
US Treasury Secretary Janet Yellen said the "significant, unprecedented commitment" would end what she called a race to the bottom on global taxation.
German finance minister Olaf Scholz said the deal was "bad news for tax havens around the world."
"Companies will no longer be in a position to dodge their tax obligations by booking their profits in the lowest-tax countries," Scholz said.
The measures will first need to find broader support at a G20 meeting next month in Venice, which includes a number of emerging economies.
Story includes information from Reuters