She also said the Liberal government still intends to go ahead with a three per cent digital services tax announced in last month’s federal budget that is set to come into effect next year, contingent on any international deals.
The first “pillar” of the agreement announced Saturday would give countries in which major multinationals do business taxation rights to at least 20 per cent of any profit above a 10 per cent margin. The second pillar involves setting a global tax floor of 15 per cent for corporations, implemented on a country-by-country basis.
“Multinational companies need to pay their fair share of taxes. Jurisdiction shopping allows them to avoid doing that,” Freeland said in a call with reporters on Saturday, referring to business and accounting practices that shift profits to low-tax countries.
Key questions remain, especially which multinational companies will be captured by the new rules in the first pillar and how the new taxed profits will be distributed among affected countries.
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Digital services tax still planned
Freeland told reporters that the government still intends to go forward with the digital services tax it announced in April. At the time, it was framed as a step forward while multilateral agreements were being negotiated, and Freeland said she hoped the domestic and international policies could “dovetail.”
The communiqué agreed to by the G7 finance ministers noted that work would need to be done to reconcile existing domestic digital taxation measures and future international agreements.
“We will provide for appropriate co-ordination 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 communiqué reads.
U.S. Treasury Secretary Janet Yellen said European countries would scrap existing digital services taxes that the United States says discriminate against U.S. businesses as the new global rules go into effect.
‘This is not something we can do on our own’
Freeland was careful to frame the Saturday announcement as an “agreement” or “position” rather than a deal, explaining it was a first significant step toward a global compact.
The G7 position will now need to be brought to a meeting of G20 countries next month, followed by an ongoing OECD-led dialogue involving more than 125 countries.
“Canada recognizes — and I believe all of my G7 partners recognize as well — that this is not something we can do on our own. We wouldn’t dream of that,” Freeland said.
But the finance minister did not specify whether or how the G7 position might change when it was presented to a wider international audience.
“The communiqué that was issued by the G7 today very much reflects all of Canada’s positions,” she said, emphasizing that the changes to a minimum tax and to the tax base needed to work together.
Freeland’s ministerial counterpart in Ireland, which has a corporate tax rate of 12.5 per cent, emphasized that the conversation would need to continue beyond the G7 to the ongoing dialogue hosted by the Organization for Economic Co-operation and Development and the G20.
“There are 139 countries at the table, and any agreement will have to meet the needs of small and large countries, developed and developing,” Paschal Donohoe said.
Major companies react
Google said on Saturday that it “strongly supports” the work being done to update international tax rules.
“We hope countries continue to work together to ensure a balanced and durable agreement will be finalized soon,” Google spokesperson Jose Castaneda said in an emailed statement.
Facebook said it expects it will have to pay more tax in more countries as a result of the agreement.
“We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places,” said Facebook vice-president for global affairs Nick Clegg.