The Group of Seven rich nations struck a historic deal and agreed to commit to a minimum global tax of at least 15 percent on a country-by-country basis.
The agreement was reached after two days of talks in London with the G7 finance ministers.
Changes will also be made to ensure that large companies, especially those with a strong online presence, will pay taxes in the countries in which they operate and not just where they are headquartered.
The new policy is believed to target the likes of tech giants Amazon and Microsoft.
Finance Minister and Eurogroup President Pascal Donohue said any changes must balance the needs of economies large and small. The corporate tax rate of 12.5 per cent in Ireland is one of the lowest in the world.
Speaking to the media in London, Donohue acknowledged that global tax reforms could now see Ireland lose up to a fifth – about 2.3 billion euros – of its total corporate tax revenue, but insisted that this was already included in the government’s budget figures.
He said the agreement was «an important milestone in the change I’ve always said was coming», but that the proposal would need to be addressed by the heads of government of the Group of Seven, the Organization for Economic Cooperation and Development and the European Union.
He said he would continue to advocate the case for «the role of legitimate tax competition» before the Organization for Economic Cooperation and Development concludes its framework on global tax policy at the end of this year.
«I am very confident that while there is change coming – a change that I have long acknowledged, a change that I have said Ireland should be prepared for – this is a change that Ireland can respond to,» he said.
“We are and will remain, and we can nonetheless be competitive in the future and the Irish economy and our government are fully capable of continuing with the right policy to deliver our competitiveness but also looking at other policy areas in the future to ensure that Ireland remains a very attractive place for local businesses to thrive from. for international investment.
He said his meeting with US Treasury Secretary Janet Yellen earlier on Saturday showed the desire for friendship and cooperation between the two countries. Minister Fine Gael said the impact of the Covid-19 pandemic has «forced» the global tax reform process as well as renewed US interest in the issue.
Officials said the decision to approve a 15% minimum corporate tax would create «a more level playing field for British companies and crack down on tax evasion».
“We are committed to finding a fair solution on the allocation of tax rights, with market countries giving tax rights on at least 20% of profits in excess of the 10% margin for the largest and most profitable multinationals,” according to a statement issued by the G7 finance ministers, seen by Reuters. He said.
“We will provide appropriate coordination between the application of new international tax rules and the abolition of all digital services taxes, and other similar related measures, for all businesses.”
British Finance Minister Rishi Sunak said on Saturday that the minimum tax rate would create a level playing field for businesses around the world.
He added that the need for national digital services taxes would disappear once the global solution was found.
The chancellor defended the decision not to push for an increase in the global corporate tax rate at the meeting with G7 finance ministers after US President Joe Biden initially argued that it should be 21 percent.
«I would say two things,» Rishi Sunak told broadcasters in London. «First of all, the agreement reached here today provides for at least 15%, and secondly, it is worth backing out.
This is something that has been talked about for nearly a decade.
«And here for the first time today we have actual agreement on the concrete principles of what these reforms should look like and this is tremendous progress.»
When asked if he was getting his hands on a lower rate, Mr Sunak replied: «I think what the British public want to know is that the tax system is fair, they want to know there is a level playing field – whether people work in tax havens or whether Big companies, especially online businesses, are able to not pay taxes in the right places, they want to address that.
«And that’s what this agreement gives us the ability to do, it was agreed among the G7 colleagues, and once we scale it up and implement it globally, it’s a huge prize for British taxpayers.»
Speaking after the deal was struck, US Treasury Secretary Janet Yellen said: “The G7 finance ministers have made a significant and unprecedented commitment today that provides tremendous momentum towards achieving a strong global minimum tax rate of at least 15%.
“This global minimum tax would end the race to the bottom in corporate taxation, and ensure fairness for the middle class and workers in the United States and around the world.
“A global minimum tax would also help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive grounds, such as educating and training our workforce and investing in research and development and infrastructure.”