This photo from September 28, 2017 shows the operation of a smartphone in front of the logos of the web giants Google, Apple, Facebook and Amazon.
Damien Meyer | AFP | Getty Images
The world’s largest tech companies face tough crackdown on corporate tax avoidance after the group of the seven most developed economies reached a historic deal on Saturday.
The G-7 backed a US proposal requiring companies around the world to pay a corporate income tax of at least 15%. The reforms, when completed, would affect the world’s largest companies with profit margins of at least 10%.
Looking ahead, the G-7 hopes to reach a broader agreement on the new tax proposals at a meeting of the enlarged G-20 finance ministers next month.
When asked if Amazon and Facebook would be among the companies affected by the proposal, Treasury Secretary Janet Yellen said she believed they “could be considered by almost any definition.”
Here’s how America’s tech giants reacted to the news:
Amazon said the deal was “a welcome step forward” to “bring stability to the international tax system”.
“We hope that discussions with the broader G20 Alliance and Inclusive Framework will continue,” an Amazon spokesman told CNBC via email.
The Organization for Economic Co-operation and Development’s inclusive framework is a group of more than 100 countries and jurisdictions that aim to “exploit” loopholes and inconsistencies in tax regulations to artificially shift profits to low or non-tax countries with little or no economic Activity “, according to the OECD website.
Nick Clegg, Facebook’s vice president of global affairs, hailed the G-7 deal, saying the social networking giant “has long called for global tax law reform”.
The agreement is a “significant first step towards certainty for companies and strengthening public confidence in the global tax system,” tweeted Clegg on Saturday.
“We want the international tax reform process to be successful, and we recognize that this could mean Facebook pays more taxes, and in other places.”
A spokesman for Google told Sky News that the company strongly supports the initiative and hopes for a “balanced and lasting” deal.
Apple wasn’t immediately available for comment on the G-7 deal when it was contacted by CNBC.
The tech tax debate
Tech giants have long been criticized for paying little taxes despite their size. Amazon and other companies are accused of avoiding taxes by shifting revenue and profits to tax havens or low-tax countries. The companies assert that they are not doing anything wrong legally, which is why politicians are calling for reforms.
Notoriously, Amazon did not pay federal income tax in 2018, despite the fact that it posted more than $ 11 billion in profits. The low tax burden resulted mainly from tax cuts in 2017, loss carryforwards from years when the company was not profitable, and tax credits for massive R&D investments and stock-based employee compensation.
Some countries, such as the UK, France and Italy, have implemented a digital service tax to collect more money from big tech companies. The aim was to implement an interim solution while global officials work out details on international tax rules.
However, this has sparked tension with the United States, which threatened to impose tariffs on French goods under President Donald Trump’s administration.
Meanwhile, some analysts have argued that the deal doesn’t go far enough while others have said it is a long way to go.
George Dibb, director of the Center for Economic Justice at the London Institute for Public Policy Research (IPPR), called the deal a “big step forward” but said there were “big questions” about the minimum tax level.
“We’d like to see something closer to 25%,” he told CNBC on Monday.
“The Biden government entered these negotiations with an opening offer of 21%, but I think the big argument in the G-7 on Friday and Saturday was whether it would say ‘15% ‘or’ at least 15 % ‘. ‘and because we now have this formulation of’ at least 15% ‘the door is still open for negotiations, “he told Squawk Box Europe.