The finance ministers of Britain, France, Italy, Japan, Canada, Germany and the United States met in London to discuss the White House’s plans for international minimum tariffs. The deal ends trans-Atlantic tensions that for years undermined negotiations between 140 countries to update century-old tax rules. The agreement also paves the way for a broader deal among G20 countries next month.

Pay where you earn

The aim of the agreement is to prevent large companies from shifting profits to avoid tax, for example through letterbox companies. Companies have to pay more taxes in the countries where they operate.

In general, rich countries have agreed on two concrete goals. These countries support the plan for a global minimum profit tax rate of 15 percent. In this way, they hope to stop the ‘race to the bottom’, in which countries continue to lower their tax rates to attract large companies at the expense of tax revenues in other countries.

In addition, these countries also want regulations to ensure that profits tax is actually paid in the country where the profits are generated.

Not everyone is happy

“I am very pleased to announce that today, after years of discussions, G7 finance ministers have reached a historic agreement to reform the global tax system,” British Chancellor of the Exchequer Rishi Sunak said in a statement. These reforms make the system suitable for the global digital era. He also called the agreement important to ensure that “the right companies pay the right taxes in the right places.”

The Tax Justice Network, an international organization committed to fairer taxes around the world, is less optimistic. CEO Alex Cobham said the minimum rate should be at least 25 percent. He asked the G20 not to agree to the proposal being discussed next month.