What is the World Minimum Tax and What Does it Mean?

What is the World Minimum Tax and What Does it Mean?

From Empirex Capital we make an important analysis about this new financial agreement.

The finance ministers of the rich countries of the Group of Seven (G7) reached a historic agreement on Saturday that supports the creation of a global minimum tax rate for companies of 15%, which could form the basis of a global pact .

The agreement aims to put an end to what the US Treasury Secretary, Janet Yellen, has called a "30-year race to the bottom in corporate tax rates" in a competition to attract multinationals.

Why a global minimum tax?

The major economies seek to discourage multinationals from shifting their profits to low-tax countries, regardless of where their sales are made.

Increasingly, revenues from intangible sources, such as drug patents, computer programs, and intellectual property rights, have migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their home countries. traditional origin.

At what point are the conversations?

The G7 agreement is part of a much broader effort. The Organization for Economic Cooperation and Development (OECD) has been coordinating tax negotiations among 140 countries for years on rules for taxing cross-border digital services and curbing the erosion of the tax base, including a global minimum corporate tax.

The minimum is expected to account for most of the $ 50 billion to $ 80 billion in more taxes that, according to the OECD, businesses will end up paying around the world if deals are reached on both fronts.

How would a Global Minimum Tax work?

The global minimum tax rate would apply to foreign earnings.

Governments will still be able to set the local tax rate they want, but if companies pay lower rates in a particular country, their home governments could "top up" their taxes down to the minimum rate, eliminating the benefit of shifting profits. .

The OECD had said last month that governments agreed on the basic design of the minimum tax, but not on the rate. Tax experts say this is the thorniest issue, although the G7 deal creates strong momentum around the 15% or higher level.

Other points that still need to be negotiated are whether mutual funds and real estate mutual funds should be covered, when to apply the new rate, and to ensure that it is consistent with US tax reforms aimed at deterring erosion.

The next

There are still many things to be specified, such as the parameters that will determine how and to which multinational companies the tax will be applied.

The G7 statement left open what will happen in the meantime with taxes on the digital services of big tech companies in various jurisdictions, which the United States wanted to be eliminated as soon as a deal is reached.

Facebook will pay more taxes

Facebook valued "the important progress" made by the G7 in agreeing a global minimum tax to multinationals, something that it assured will give more "certainty to companies", while acknowledging that it will mean that the social network "pays more taxes" in different countries.

"Facebook has long called for a reform of global fiscal rules and we welcome the significant progress made at the G7," Nick Clegg, the social network's head of global affairs, said in a message on Twitter shortly after meeting. the agreement.

Clegg stressed that today's agreement is a "significant first step" to "give certainty to companies and strengthen public confidence in the global tax system." He also recognized that as a consequence of an eventual ratification of the pact "Facebook would pay more taxes, in different places."

Created on 11th Jun 2021