G7 tax deal has a major loophole — Experts

The deal to harmonise tax on multinationals globally agreed to on Saturday by the G7 leaves a large loophole, one that may permit large companies to avoid tax, according to experts.

The deal agreed in principle that the largest multinational companies pay a minimum tax rate of at least 20 per cent in each country they operate. All other business would be subject to a minimum 15 per cent tax rate.

But that 20 per cent minimum tax rate would only apply to “profit exceeding a 10 per cent margin for the largest and most profitable multinational enterprises”, according to the statement from G7 ministers released on Saturday.

Facebook said it expected it would have to pay more tax, in more countries, as a result of the deal, which comes after eight years of talks that gained fresh impetus in recent months after proposals from US President Joe Biden’s new administration.

However, Amazon, which runs at a low profit margin of 6.3 per cent on average, may not be subject to the 20 per cent tax rate.

Amazon runs its online retail business at very low profit margins, partly because it reinvests heavily, and partly to gain market share, Richard Murphy, visiting professor of accounting at the Sheffield University management school, told the Guardian.

Murphy said the 10 per cent profits threshold was “inappropriate” because of different business models for different companies. He added that current approaches to reporting profits in each country were “easily gamed”.

“This could turn out to be a false hope unless they get the detail right,” he added.

Activists seconded this analysis, but also criticised the move as too weak.