![G7 Agrees On Global Corporate Tax Proposal By The US, But Issue Remain G7 Agrees On Global Corporate Tax Proposal By The US, But Issue Remain](https://www.dailymanagementreview.com/photo/art/default/56933790-42270530.jpg?v=1623076111)
The expected agreement of the Group of Seven, or G7, countries to a proposal by the United States for a global minimum corporate tax accord was the big news over the weekend.
The aim of such a proposal is to prevent large multinational companies from shifting to low tax countries to save on taxes payable in their home countries as well as to ensure that such corporate pay taxes in the countries from where they generate their profits even if they do not have any physical presence in such countries.
The proposed deal comprises of two major parts. The first major element is the imposition of a global minimum tax rate of 15 per cent while the second most important point is to ensure rights of countries to tax one-fifth of the excess profits, which has been defined as the profits of companies above a 10 per cent profit margin, that are accumulated by the largest multinational companies of the world.
Described as historic, this agreement between the top 7 richest countries of the world is also expected to arrest the downward spiralling of corporate tax rates which has been termed as the “race to the bottom”.
Compared to 40.11 per cent in 1980, the unweighted average worldwide statutory tax rate dropped to 23.85 per cent currently, according to the Tax Foundation. According to the estimates of the Organisation for Economic Cooperation and Development (OECD), global corporate income tax revenues could be increased by $80 billion a year if this new proposal was implemented globally.
However analysts also view this G7 agreement as only the first step in a long journey. As a second step, the proposal has to be accepted by the wider G20 group of nations which are to meet next month and then to the wider world at large.
Analysts have also pointed out a number of issues that will be needed to be addressed prior to a global adoption of the deal. One of the issues is finalizing the exact definition of many terms – ranging from profit margins to the ‘largest and most profitable multinational enterprises’.
According to a framework envisioned by the OECD, a system has to be developed under which corporate will have to pay taxes in a proportionate manner in the countries from where they generate revenues or have users. That would mean that companies such as Google and Facebook will have to pay taxes both in Europe and in India. However such a measure will also mean eliminating taxes such as the equalisation levy in India.
Further, the rate of corporate tax as spelled out in the proposal could also be questioned. In its statement, the G7 talked about a “global minimum tax of at least 15 per cent”. However the United States itself had proposed a corporate tax rate of 21 per cent previously. In comparison, low tax countries such as Ireland would desire the rate to be closer to 12.5 per cent. And with activists and NGOs such as Oxfam already alleging that the 15 per cent corporate tax rate is such a low bar that large companies can very easily “step over it”, it would be critical to iron out the tax rate.
(Source:www.moneycontrol.com)
The aim of such a proposal is to prevent large multinational companies from shifting to low tax countries to save on taxes payable in their home countries as well as to ensure that such corporate pay taxes in the countries from where they generate their profits even if they do not have any physical presence in such countries.
The proposed deal comprises of two major parts. The first major element is the imposition of a global minimum tax rate of 15 per cent while the second most important point is to ensure rights of countries to tax one-fifth of the excess profits, which has been defined as the profits of companies above a 10 per cent profit margin, that are accumulated by the largest multinational companies of the world.
Described as historic, this agreement between the top 7 richest countries of the world is also expected to arrest the downward spiralling of corporate tax rates which has been termed as the “race to the bottom”.
Compared to 40.11 per cent in 1980, the unweighted average worldwide statutory tax rate dropped to 23.85 per cent currently, according to the Tax Foundation. According to the estimates of the Organisation for Economic Cooperation and Development (OECD), global corporate income tax revenues could be increased by $80 billion a year if this new proposal was implemented globally.
However analysts also view this G7 agreement as only the first step in a long journey. As a second step, the proposal has to be accepted by the wider G20 group of nations which are to meet next month and then to the wider world at large.
Analysts have also pointed out a number of issues that will be needed to be addressed prior to a global adoption of the deal. One of the issues is finalizing the exact definition of many terms – ranging from profit margins to the ‘largest and most profitable multinational enterprises’.
According to a framework envisioned by the OECD, a system has to be developed under which corporate will have to pay taxes in a proportionate manner in the countries from where they generate revenues or have users. That would mean that companies such as Google and Facebook will have to pay taxes both in Europe and in India. However such a measure will also mean eliminating taxes such as the equalisation levy in India.
Further, the rate of corporate tax as spelled out in the proposal could also be questioned. In its statement, the G7 talked about a “global minimum tax of at least 15 per cent”. However the United States itself had proposed a corporate tax rate of 21 per cent previously. In comparison, low tax countries such as Ireland would desire the rate to be closer to 12.5 per cent. And with activists and NGOs such as Oxfam already alleging that the 15 per cent corporate tax rate is such a low bar that large companies can very easily “step over it”, it would be critical to iron out the tax rate.
(Source:www.moneycontrol.com)