Canada’s Finance Minister and the G7 finance ministers have agreed to support a minimum global corporate tax rate for large, multinational companies of at least 15% on a country-by-country basis. This global tax would apply under Pillar Two of the Organization for Economic Cooperation and Development’s (OECD) proposed two-pillar approach to address tax challenges arising from the digitalization of the economy. The proposals were brought forth initially in 2019 as part of its base erosion and profit shifting (BEPS) project. The first pillar focuses on the allocation of taxing rights, including nexus issues. These proposals typically allocate more taxing rights to market or user jurisdictions where value is created through businesses’ participation in the user or digitalized economy under Pillar One.

The G7 finance ministers also committed to several other measures in a communique issued on June 5, 2021, including how market countries would be awarded taxing rights under Pillar One, and coordinating the application of these new international tax rules with the removal of digital services taxes.

Following this announcement, it appears that the OECD and the Inclusive Framework of over 135 countries (including Canada) are making progress on achieving global consensus on the OECD’s two-pillar approach for taxing the digital economy. The G7 has indicated that it intends to progress both Pillars and reach an agreement at the meeting of G20 finance ministers and central bank governors in July 2021.

Even though Finance expressed optimism for the progress on the OECD’s two-pillar approach following the G7 meeting, it reiterated its intention to apply the temporary digital services tax as of January 1, 2022, until an acceptable multilateral approach comes into effect.