G7 Goes For 15% global minimum tax

The G7 finance ministers have just reached a “historic agreement” on how to reform global taxation. The G7 comprises the United Kingdom, Canada, France, Germany, Italy, Japan, the United States.

The problem:

The problem is that business done on the internet cloud currently escapes tax legally if the supply company is resident in a tax haven and has little or no physical presence where the customers are. Caribbean islands are the wild west of the tax world. Governments need to finance regular public expenditure and covid aid.

Time for Reform:

During the G7 meeting, Finance Ministers agreed the principles of a “Two Pillar” tax package proposed in 2020 by the OECD.

Under Pillar One of this historic agreement, the largest and most profitable multinationals will be required to pay tax in the countries where they operate – presumably where the customers are.

These rules (or part of them) would only apply to global firms with at least a 10% profit margin – and would see 20% of any profit above the 10% margin reallocated to the countries they operate in and taxed there.

Under Pillar Two, the G7 also agreed to the principle of at least 15% global minimum corporation tax operated on a country by country basis.


Rishi Sunak, the UK Chancellor of the Exchequer (Finance Minister) who hosted the G7 meeting was quick to claim credit: “These seismic tax reforms are something the UK has been pushing for…”

In reality, the Biden Administration was probably cracking the whip. Three days before, it imposed 25% import duties, suspended for 180 days, on the UK and five other countries that have introduced digital service taxes on internet sales (not profits) to customers in their countries.

Google and Facebook reportedly welcomed the G7 announcement – perhaps because the Two Pillars would not be retroactive and digital service taxes could be much worse.

What’s missing?

Most of the finer details are missing from the G7 communique. But the proposals will be discussed further and could be wrapped up at an upcoming G20 Financial Ministers & Central Bank Governors meeting in July this year. After that, around 139 countries aligned with the OECD Two Pillars need to accept the resulting package. This is expected to happen, it was the US Trump administration that slowed down the Two Pillar measures.

Our Comments:

The Two Pillar proposals now have wind in their sails from the G7, but they won’t be plain sailing for businesses. Here’s why.

Multiple taxes on the same income:

Internet operators may soon move from low tax to multiple taxes – not only income taxation but also sales tax in US states, VAT/GST (goods and service taxes) in the EU and many other countries and digital service taxes. Simulations we have run suggest that taxes may reach 40%-60% of profits if no action is taken.


The Two Pillar proposals are complex and controversial in places. Worse, the OECD admits (in the Pillar 2 small print) that the interaction between Pillar 1 and Pillar 2 has yet to be worked out.


The Two Pillar profit re-allocations between countries may prove difficult politically and practically to administer. Will there be an international coordinating body?

Insufficient foreign tax credits:

It is generally not possible in any country to credit foreign sales tax/VAT/GST against income tax. Such relief will be sorely needed, but does not seem likely to happen.

Consumers may bear the brunt:

The Two Pillar proposals are largely targeted at B2C (business to consumers). Consumers may end up paying directly or via online marketplaces: customs duty, sales tax/VAT/GST, and even withholding tax in many cases according to Pillar 2 proposals. Perhaps we should all flock to Maryland which proposes to ban suppliers from passing on its new digital levy to customers.

Not only tech giants affected:

Part of Pillar 1 would apply to business suppliers of all sizes, so will tighter tax treaties and VAT/GST rules of many countries. Even start-ups and other businesses that use the internet (who doesn’t?)  could be affected.

Right of appeal:  

The OECD has yet to clarify appeal procedures. Existing mutual consultation or mediation procedures involving different tax authorities usually take years. What is needed is a fast efficient system of e-commerce tax tribunals.


Israel is a member of the OECD and issued a Tax Circular in 2016 proposing to tax foreign companies with a significant economic presence in Israel – such as websites in Hebrew or quoting prices in Shekels. More recently, the Israeli Tax Authority has sought to use the profit split method of transfer pricing giving maximum weighting to the contribution skilled Israeli personnel (rather than customers, assets or risks). If the OECD Two Pillar proposals are indeed finalized and implemented, Israel would need to accept them as being the international consensus and an OECD requirement.

To sum up:

The G7 has given a push forward to half-baked Two Pillar proposals of the OECD. E-commerce businesses should:

  • Prepare for the likely tax upheaval and multiple taxes. This involves ABC:
  • Automation of tax compliance;
  • Business nexus – review the new rules;
  • Comprehensive structural planning – new legal solutions exist.

Next steps:

Please consult us at an early stage in specific cases. We specialize in e-commerce taxation.

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The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd

© Leon Harris 6.5.21

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