G7 'historic agreement' ups momentum of global tax reform for large multinationals

Published on 18th Jun 2021

Full agreement and specifics are a long way off but the deal marks the way for G20 talks to address further the tax challenges of globalisation and digitalisation


The Group of Seven (G7) advanced economies heralded an unprecedented commitment in early June on global tax reform for large multinational companies, which Rishi Sunak, the UK chancellor, welcomed as a "truly historic agreement" and "seismic tax reforms". However, there are many questions still to be answered before there can be any certainty on the extent and detail of the reform.

Finance ministers from the G7 nations (Canada, France, Germany, Italy, Japan, the UK and the US) published a communiqué on 5 June 2021 setting out their agreement on elements of the proposals that have been progressing through the Group of 20/Organisation for Economic Cooperation and Development (G20/OECD) Inclusive Framework and address the tax challenges arising from globalisation and the digitalisation of the economy.

OECD pillars

The agreement reached relates to both pillars of the OECD project: pillar one aims to tax profitable multinational companies in the countries in which they operate (and not just where they are located for tax purposes – so-called "nexus" rules); and pillar two sets out a global minimum corporation tax rate.

The G7 agreement includes commitments:

  • To reallocate the taxing rights of the largest and most profitable multinational enterprises – the proposed rules would apply to global firms with at least a 10% profit margin and would see 20% of any profit above the 10% margin subject to tax in the countries in which they operate.
  • To remove unilateral digital services taxes (DSTs).
  • To introduce a global minimum tax of "at least" 15% on a country by country basis.

The G7 finance ministers noted the importance of progressing agreement in parallel on both pillars and to reaching an agreement at the 9-10 July meeting of G20 finance ministers and central bank governors.

Alongside the UK chancellor's praise of the agreement, Janet Yellen, the US treasury secretary, made a statement that focused on the global minimum tax rules and said that "the G7 finance ministers have made a significant, unprecedented commitment today".

Unanswered questions

The communique is important and huge changes in the tax landscape for large multinationals may be on the horizon, but the scope of the changes is by no means certain. In particular the following issues remain:

Will the proposals gain wider international agreement? The agreement still needs consensus among the 139 jurisdictions which are members of the OECD Inclusive Framework. In addition while it is extremely encouraging that the US has been part of the G7 communiqué, any implementing legislation in the US would need to pass through Congress, which is by no means certain.

Will all domestic DSTs be abolished? Aligned to the new proposals is the question of what will happen to the existing DSTs that are in place (for example, in the UK and France). Would the unilateral DSTs remain for other large multinationals that did not fall within the scope of any new rules?

Will there be sector carve-outs? The communiqué is silent on whether there will be any carve-outs for particular industries or sectors. The UK is understood to be pushing for the financial services industry to be excluded – a move which could benefit the City but is likely to provoke an adverse reaction from other sectors and industries.

Must pillar one and pillar two be agreed together? Agreement on pillar two may be more difficult for the G20 to agree as there will, no doubt, be potential winners and losers (such as Ireland whose corporate tax rate is 12.5%). The G7 communiqué is also clear that the minimum rate is "at least" 15% and so this figure may still increase.

Osborne Clarke comment

There is still a long way to go to reach full agreement on these measures– in particular the G20 meeting in July is the next important milestone – but it is clear that there is increased momentum for a global solution and the G7 agreement is an important step towards that goal.


* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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