Wealthy G-7 Nations Back Global Minimum Tax – Courthouse News Service

The United States is among the wealthy members of the Group of Seven proposing a minimum global tax rate of at least 15% for multinational corporations. The deal comes as governments around the world try to fight corporate tax evasion and increase their public finances, which have been damaged by the coronavirus.

Finance ministers from all G7 countries will meet on Saturday ahead of the G7 Summit at Lancaster House in London. On the left the EU Economic Commissioner Paolo Gentiloni and the President of the Eurogroup, Paschal Donohoe. Third from right is Treasury Secretary Janet Yellen. (Henry Nicholls / Pool Photo via AP)

(CN) – In a big move towards closing loopholes that allow multinational corporations like Google and Amazon to avoid taxes through tax havens and subsidiaries, Group of Seven Treasury Ministers have a minimum global corporate tax rate of at least the weekend. proposed 15% and a formula for collecting taxes on profits where they are made.

The deal, which was struck during a G-7 finance meeting in London and promoted by Treasury Secretary Janet Yellen, is part of a wider effort by debt-ridden and crisis-ridden governments around the world to generate new revenue and date international tax rules to established a century ago.

Although the minimum tax rate of 15% is below the 21% rate targeted by some, it was hailed as a historic breakthrough for international tax law and received pledges of support from the G-7 on Saturday. Finance ministers also advocated that the world’s largest corporations should pay taxes in countries where they sell a lot but have no physical headquarters.

Governments and policymakers have worked for the last decade or so to tax stateless multinational corporations, which can make huge profits through online sales, digital data capture, and online advertising, while selling their profits to subsidiaries using mostly legal but unfair methods Relocate tax havens. Nations that are competing for the best tax treaties are in some kind of race to the bottom.

Rishi Sunak, the UK chief financial officer who chaired the meeting, said the G-7 tax treaty creates “a fairer tax system suitable for the 21st century”.

This is far from the end of the road. The proposals must be approved by the individual G-7 states and also accepted worldwide. The Group of Seven consists of the United States, the United Kingdom, France, Germany, Italy, Canada, Japan, and the European Union.

In Washington, Republicans could try to derail the proposals by arguing that they are bad for business; and some states in the EU that benefit as tax havens, such as Ireland and Cyprus, may try to do the same.

The proposals will be taken up by finance ministers of the G-20 – another informal group that includes the G-7 as well as other major economies such as China, Russia, India and Saudi Arabia – at a meeting in Venice in July.

Italy is hosting the G-20 this year with a final summit scheduled for October in Rome. The UK is hosting the G-7 and U.S. President Joe Biden, who is pushing for a US corporate tax hike to pay for his massive stimulus plans, is slated to make his first trip to Europe as president when the G-7 meets Friday for three days on the English coast.

At the same time, the Paris-based Organization for Economic Co-operation and Development, to which more than 100 nations belong, has been working on similar global tax proposals for several years.

US Treasury Secretary Janet Yellen poses with Eurogroup President Paschal Donohoe at Lancaster House in London ahead of the G7 Summit on Saturday. (AP Photo / Alberto Pezzali, pool)

On Sunday, OECD Secretary General Mathias Cormann said in a statement that the G-7 proposal was a “groundbreaking step towards the global consensus required to reform the international tax system”.

“The combined effect of globalization and digitization of our economies has created distortions and inequalities that can only be effectively addressed through a multilaterally agreed solution,” said Cormann.

The aim is to close tax loopholes that allow multinational corporations to set up systems and avoid taxes in tax havens like Ireland, Cayman Islands, Bermuda and Cyprus, even if they are making immense profits worldwide. These tax regimes are often based on exploiting gaps and inconsistencies between national tax rules.

Tax experts say today’s international tax system was introduced in the 1920s, exempting companies from paying taxes on overseas sales if they do not have a physical presence, such as a factory or store, in the country where those sales are taking place. Given the exponential growth of the digital economy, many policy makers believe global tax reform is fundamental.

Saturday’s G-7 deal can also be seen as an attempt by the US to fend off a series of so-called taxes on digital services proposed and implemented by EU and non-EU countries that are trying to get a little off the tax to take. American technology giants like Google, Amazon, Facebook and Airbnb make free profits in their countries.

Since the 2008 financial crisis forced governments and citizens to painfully tighten their belts, the creative way multinational corporations avoid taxes on their worldwide sales has been much scrutinized, and public outrage has grown at the same time.

Given that trillions of dollars are being spent on aid and economic incentives during the coronavirus pandemic, political leaders say finding new income is even more important.

The G-7 agreement was based on two pillars, the most important of which is agreement on the principle that at least 15% global minimum corporate tax should be levied from country to country. For example, if a German multinational company declares its income in Ireland, where it is taxed at an effective tax rate of 5%, Germany could charge an additional 10% to achieve a tax rate of 15%.

The agreement also states that the largest and most profitable multinationals will have to pay taxes in the countries in which they operate, not just where they are headquartered.

In particular, the new rules would apply to global companies with a profit margin of at least 10% and 20% of any profit above the 10% profit margin would be reallocated and then taxed in the countries in which they operate.

Some large US technology companies have agreed to the proposals for the time being. There seems to be a growing awareness among some of the major technology boards that they will have to pay more taxes.

“We want the international tax reform process to be successful, and we recognize that this could mean Facebook pays more taxes elsewhere,” Facebook vice president of global affairs Nick Clegg wrote on Twitter.

The British Chancellor of the Exchequer Rishi Sunak (left) with the President of the Eurogroup, Paschal Donohoe. (AP Photo / Alberto Pezzali, pool)

Gabriel Zucman, a tax expert at the University of California-Berkeley, said agreeing a minimum rate of 15% could go a long way in dealing with tax evasion.

“This is a game changer because it reduces the incentive for multinational companies to post profits in tax havens,” he said in an analysis on Twitter. “Indeed, this seriously undermines (and destroys) the tax haven development model.”

A recent study found that around $ 500 billion in tax revenue is lost to corporate tax evasion worldwide every year, according to the EU Tax Observatory, an independent research laboratory from the Paris School of Economics. The study found that middle- and low-income countries were proportionally much more likely to suffer from tax evasion because the revenues they miss made up a higher percentage of their GDP.

According to a study by the EU Tax Observatory, the EU will generate around $ 58 billion in new tax revenue at a minimum rate of 15%.

But the proposal was also criticized because many consider a share of 15% to be far too low.

“It is absurd for the G-7 to claim they are ‘overtaking’ a broken global tax system by introducing a global minimum corporate tax rate similar to the soft rates levied by tax havens like Ireland, Switzerland and Singapore.” said Oxfam, an international charity. “You set the bar so low that companies can easily exceed it.”

Biden initially proposed setting the minimum rate at 21%, but it was watered down to 15% at the G-7 meeting.

Courthouse News reporter Cain Burdeau is based in the European Union.

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