G20 finance ministers have announced they are supporting a historic shake-up in tax laws that target multinational corporations that move profits into low-tax havens.
The support, of the 19 biggest economies and the European Union will help ensure the tax revolution becomes a reality following eight years of intense negotiations.
“We have achieved a historic agreement on a more stable and fairer international tax architecture,” the G20 finance ministers said in a final statement after the meeting in Italy.
“We endorse the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax.”
The deal will change international rules so that large multinationals pay their share of tax in the countries in which they do business.
It will introduce a global minimum rate that ensures multinationals pay tax of at least 15 per cent on profit in each country in which they operate.
A total of 131 countries representing 95 per cent of the world's gross domestic product have signed up to a deal on global tax reform, building on the agreement reached when the UK hosted G7 ministers in London last month.
In Venice, on Saturday, the G20 gave its backing.
“The world is ready to end the global race to the bottom on corporate taxation,” US Treasury Secretary Janet Yellen said.
She added that the world “should now move quickly to finalise the deal".
While tax campaigners point to loopholes in the proposals and wanted a more ambitious crackdown, the move is a rare case of cross-border coordination in tax matters and could strip many tax havens of their appeal.
If all goes to plan, the new tax rules should be translated into binding legislation worldwide before the end of 2023.
However, there could be a fight in the US where many of the multinationals were founded by people who now among the world’s richest, and there could be difficulties in the EU where Ireland, Estonia and Hungary have not yet signed up.
The reforms aim to prevent countries competing to offer ever lower tax rates to attract investment, which has often resulted in multinationals paying tiny levels of tax.
French Finance Minister Bruno Le Maire said it was a once-in-a-century opportunity for a “tax revolution”, adding: “There is no turning back.”
“Finally, large corporations can no longer escape their tax liability,” the German Finance Minster Olaf Scholz, tweeted.
Final agreement on the deal is expected in the run-up to the G20 leaders' summit in Rome in October.
Multinationals operate in many countries but usually pay taxes on profits only in tax domiciles cherry-picked for their low rates.
The profit reform would initially apply to the top 100 or so companies, and is targeted at the most aggressive users of tax-reducing domiciles, such as technology giants Google, Amazon, Facebook and Apple.
The changes agreed to will ensure “that the right companies pay the right tax in the right places”, Britain's Chancellor of the Exchequer Rishi Sunak said.