A Group of 20 leaders has backed a deal that would radically change the taxation of large global corporations.
The goal: to prevent multinational corporations from avoiding profits in countries where they pay little or no tax – so-called tax havens.
The proposal was finalized among 136 countries in October and, after complex discussions overseen by the Organization for Economic Co-operation and Development, was submitted to the G20 for final review. This means that centuries-old international tax regulations are being adapted to the changes brought about by digitalization and globalization.
A most important feature is a minimum global tax of 15%, a key initiative US President Joe Biden called for. “This is more than a tax deal. It’s diplomacy that is reshaping our global economy and delivering results for our people,” Biden tweeted at the summit on Saturday. Corporate tax rates are falling as tax havens seek to entice companies. That use clever accounting to take advantage of low rates in countries where they do little real business.
Here’s a look at the most important aspects of tax transactions:
WHAT IS THE PROBLEM?
In today’s economy, multinational companies can benefit significantly from things like brands and intellectual property, which are easier to transport than factories. In addition, companies can transfer their profits to subsidiaries in the country at meager tax rates.
Some countries compete for revenue by attracting companies What Is The G20-Backed at the lowest rates. And attracting large tax bases that generate high revenues even at tax rates of just slightly above zero. Between 1985 and 2018, the average share of global companies fell from 49% to 24%. In 2016, more than half of all corporate profits in the US were registered in seven tax havens. Bermuda, Cayman Islands, Ireland, Luxembourg, Netherlands, Singapore, and Switzerland. White House officials said the global minimum would generate nearly $60 billion in additional US tax revenue.
HOW DOES THE MINIMUM GLOBAL TAX WORK?
The basic idea is simple: the state will legalize a minimum tariff of at least 15% for huge companies. With annual sales of more than 750 million euros ($864 million). If the company’s profits remain tax-free or are lightly taxed in one of the world’s tax havens. The home country will levy an additional 15% tax. Therefore, it makes no sense from companies to use a tax haven since the tax-free asylum tax is levied domestically.
HOW DO YOU PLAN TAX ON A DIGITALIZATION ECONOMY?
The plan would also allow countries of tax a portion of What Is The G20-Backed the income of some of the world’s 100 most prominent multinational companies. When they do business in places with no physical presence, such as online retail stores or advertising. The tax is only levied on a portion of the profits of the 10% profit margin.
In return, other countries will remove their unilateral taxes on digital services for US tech giants. Such as Google, Facebook, and Amazon. That would prevent a trade dispute with Washington, which claims such taxes are misdirected on US companies.
WHAT IS THE UNITED STATES ROLE IN AGREEMENT?
Biden said the United States should join the global minimum tax to convince other countries to do so. This would include increasing the current foreign profit rate of 10.5% to reflect the global minimum. His tax proposal is still being negotiated in Congress.
US participation in minimum tax treaties is essential because it has so many multinational corporations – 28% of the world’s 2,000 largest corporations. A complete rejection of Biden’s proposal for a global minimum would seriously undermine international agreements.