The meeting of finance ministers of the G-7 alliance of the world’s top economies has reached a historic agreement to bring the top technology companies in the United States under global taxation. The countries have also agreed to impose a minimum corporate tax on multinational companies.
From now on, the G7 finance ministers have agreed to an agreement aimed at setting a minimum of 15 per cent corporate tax on multinational companies worldwide, according to a BBC report.
The announcement was made after a two-day meeting of G-7 finance ministers in London on Saturday. If the decision goes ahead, companies like Amazon and Google will also be subject to the new tax. The agreement also paves the way for companies to pay taxes in countries where they do business.
It was reported this week that a subsidiary of Microsoft in Ireland did not pay any corporate tax on its 315 billion profit last year. Tax evasion opportunities were created by showing the company as Bermuda-based.
The G7 member states, the United States, the United Kingdom, France, Germany, Canada, Italy and Japan, have ratified the agreement. The BBC says that if their decision is implemented, the governments of these countries could receive billions of dollars, which will give them a new way to meet the cost of dealing with the epidemic.
After several years of negotiations, the countries have reached an agreement on this agreement. Now there will be pressure on other countries to follow suit. The issue is expected to be discussed at the G20 meeting next month.
UK Finance Minister Rishi Sunak said the deal was designed to create a “level playing field” for companies with businesses around the world.
“After several years of negotiations, the G-7 finance ministers have reached a historic agreement to make the global tax system suitable for this age of the digital world,” said Rishi Sunak.
Why this change?
Countries have long faced multifaceted challenges in imposing taxes on multinational companies that conduct business around the world.
This challenge was exacerbated by the expansion of technology corporations such as Amazon and Facebook.
Now companies can open local branches and declare profits in countries with relatively low corporate taxes. In other words, they can only go there by paying taxes at the local rate. They can do this even if the money comes from selling the product in another country. Companies are taking advantage of this legally.
The agreement sets out the goal of closing it in two ways. First, the G-7 wants to set a minimum tax rate for these companies around the world. Second, companies have to pay taxes in the countries where they will sell their products or services.
Whatever is in the contract
The main point of the agreement is that companies operating in different countries of the world with a profit margin of at least 10 percent will be taxed at every place where they operate.
On top of that, 20 percent of the profits will have to go to the countries where they run their business and the corporate tax will be determined according to the rules there.
In the United Kingdom, for example, the government of this country will receive large sums of revenue from large multinational companies, which they will be able to spend on the welfare of the people.
The second point of the agreement is that companies will have to impose a corporate tax rate of at least 15 percent worldwide to avoid tax evasion.
The agreement will be discussed in detail at a meeting of G20 finance ministers and central bank governors next July.
In Ireland, the corporate tax rate is 12.5%. “Everyone wants a sustainable, ambitious and egalitarian agreement on the international tax structure,” Finance Minister Pascal Donohe said in a tweet. However, the interests of small and large, developed and developing countries must be seen in any agreement.