G7 agrees to global minimum corporate tax, but needs to consider details



The world’s major industrialized nations reached an agreement on June 5 to set a global minimum tax rate to prevent multinational corporations from transferring profits to countries with low tax rates. This agreement is an important breakthrough, but more work awaits those seeking an international agreement on corporate tax.

According to the G7 Finance Minister’s communiqué, groups of seven countries (G-7) have agreed to “promise a world minimum tax of at least 15% per country.” The group hopes to reach a similar agreement at the Group 20 meeting next month, which could lead to a broader agreement for the Organization for Economic Co-operation and Development (OECD) this year.

Over the years, the OECD has coordinated talks among 140 countries on cross-border tax reform and aims to reach a conclusion soon.

“This agreement is subject to further agreement and much work is still needed to ensure that the policy works well,” said Daniel Bun, vice president of global projects at the Tax Foundation, at the Epoch Times. Told to.

“I’m afraid that if policymakers don’t pay attention, it could affect the flow of foreign direct investment around the world and adversely affect corporate investment around the world,” he added.

According to Bunn, the deal does not “end the race to the bottom,” as Treasury Secretary Janet Yellen suggests. He argued that countries would continue to find other ways to compete in tax policy.

“It’s interesting that the countries that agreed to this tax system have their own special provisions and the tax rate is less than 15%. Like the UK, it has a rate of 10% of patent revenue.” Patents Some countries have “boxes,” he pointed out.

“It will be interesting to see if the world’s lowest taxes will keep these policies alive.”

The G7 countries (Canada, France, Germany, Italy, Japan, United Kingdom and the United States) have reached an agreement on two pillars.

The first pillar changes the tax assignment. Under this proposal, a company is established and is obliged not only to pay taxes where its assets and employees are, but also where it has sales.

At Yellen’s suggestion, the new rule applies only to the 100 largest and most profitable companies in the world.

“This is a whole new way of tax policy for multinationals, and one of the reasons the Treasury tried to limit it to the 100 largest companies is that it can be very complicated.” Mr. Bun said.

This new rule could eliminate digital service taxes on major tech companies.

The second pillar of the G7 agreement is to impose a global minimum tax on all companies that may have a low effective tax rate on foreign income. If a company pays a lower tax rate in a particular country, the company’s home country may “add” taxes on foreign income to the minimum tax rate, eliminating the benefit of transferring profits.

Global minimum corporate tax rates make tax havens less attractive. Tax havens have become part of global business practices over the last three decades.

The shift in corporate profits by US multinationals to tax havens jumped from about 5-10% of gross profits in the 1990s to about 25-30% in 2019. report According to the International Monetary Fund.

The use of tax havens also causes the government to lose $ 500 to $ 600 billion in corporate tax revenue annually, according to a study cited by the IMF.

Goldman Sachs estimated that the 15% global minimum tax rate would have a “small” impact on US corporate profits. Goldman Sachs reports that the downside risk is only 1-2%.

“In the US stock market, industries with low current effective tax rates and high exposure to foreign income face the greatest risks,” the report said. “At the sector level, information technology and healthcare face the greatest revenue risk, but even these sectors appear to face a combined downside of less than 5% compared to consensus estimates.”

According to experts, the direct impact of the 15% global minimum tax on US companies will also depend on other tax systems coming from the US Congress.

President Joe Biden is proposing a significant tax increase to US companies to pay $ 2.3 trillion in US employment plans. His proposal imposes a minimum tax of 15% on the book income of large corporations and raises the tax rate on domestic and international income.

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