European finance ministers say deal to stop global tax abuse is ‘within reach’

France, Germany, Italy and Spain increase pressure for an end to loopholes that enable multinationals to pay minimal tax

The EU’s four biggest economies have raised the pressure for a landmark agreement to curb tax abuse by multinational companies to be reached at G7 meetings in London on Friday.

Sending a united message in a letter in the Guardian, the finance ministers of France, Germany, Italy and Spain said a critical moment had been reached to strike a blow against tax avoidance as governments around the world attempt to rebuild from the Covid-19 pandemic.

The heads of the EU’s most powerful finance ministries, who are set to meet G7 counterparts at Lancaster House in London, said that agreement at the summit was within reach after years of false starts.

“For more than four years, France, Germany, Italy and Spain have been working together to create an international tax system fit for the 21st century. It is a saga of many twists and turns. Now it’s time to come to an agreement,” they said.

A breakthrough in London would be key for paving the way for a wider deal between nations including China, India and Brazil at meetings taking place between the G20 in Italy next month, the ministers said, adding there was a need to re-establish an international consensus on major global issues.

“We therefore commit to defining a common position on a new international tax system at the G7 Finance Ministers meeting in London this Friday. We are confident it will create the momentum needed to reach a global agreement at the G20 in Venice in July.”

Representing three of the seven ministers attending the meetings outside the UK, United States, Canada and Japan, the letter was signed by the French finance minister, Bruno Le Maire, Germany’s Olaf Scholz, and Italy’s Daniele Franco.

Although Spain is not a member of the G7, its finance minister, Nadia Calviño, signed the letter as the EU’s fourth biggest economy in a display of unity between the bloc’s largest superpowers, reflecting determination at the heart of the EU to push through landmark tax reforms.

Talks between G7 leaders are understood to be delicately balanced as they seek to hammer out a transformative deal to bring an end to tax avoidance by multinationals and big technology companies using tax havens to exploit loopholes in the global system.

The letter comes in the wake of UK reluctance to support proposals made by the US president, Joe Biden, earlier this spring for a global minimum rate of corporation tax, which would form the backbone of the international agreement.

The plan put forward by Washington includes two main pillars: one enabling countries to tax some of the profits made by 100 of the world’s biggest companies based on where they generate revenues, rather than where the firm is located for tax purposes; and a second pillar setting a minimum global corporation tax rate. The US has suggested a 15% floor, raising questions about whether EU support could be reached given lower tax rates are applied in some nations including Ireland, Hungary and Cyprus.

However, the chancellor, Rishi Sunak, has moved closer in recent days to backing the Washington plan while insisting it must be coupled with a deal that would raise more tax from US tech giants operating in Britain.

Sources close to the Treasury said reaching an international agreement on how large digital companies are taxed has been a priority for the chancellor since he took office, and that Sunak was expected to highlight the importance of a deal that ensures large companies pay a level of tax that reflects their economic activities in the UK.

The reforms are being negotiated between 135 countries at the Organisation for Economic Co-operation and Development in Paris, with the aim of reaching a deal by October this year.

Although a push for a firm statement from the G7 is being made by France, Germany, Italy and Spain, some nations including the US are thought to be holding out for an agreement to be settled at the G20 meeting in Italy next month, so as to avoid the impression of a stitch-up between the largest economic powers.

Speaking after preliminary talks held with the US Treasury secretary, Janet Yellen, on Thursday evening before the main summit, Sunak said securing a global agreement on digital taxation was a key priority.

“We want companies to pay the right amount of tax in the right place, and I hope we can reach a fair deal with our partners. I’m determined we work together and unite to tackle the world’s most pressing economic challenges – and I’m hugely optimistic that we will deliver some concrete outcomes this weekend.”

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