Finance ministers from 20 of the world’s largest economies agreed on Saturday to set a minimum tax rate on corporate profits of 15% and to adjust the place where some taxes are levied to the modern digital economy and move their profits to low-tax countries.
US Treasury Secretary Janet Yellen speaks during a press conference during the G20 Treasury Secretary … [+]
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The new tax system, due to come into force in 2023, was agreed by 132 countries after the G20 and the Organization for Economic Cooperation and Development met in July.
It sets a minimum effective global tax of 15% for multinational companies with sales in excess of $ 890 million.
The system will redirect some of the taxes that large multinational corporations pay to the countries where their products or services are sold, rather than just having the taxes go to the country where they are headquartered.
Multinational corporations with sales of more than $ 23.8 billion – with major exceptions to financial firms and “extracts” like oil companies – will pay between 20% and 30% of their profits over a 10% margin to countries where their products are produced or services are sold.
That means the US receives less taxes from Google and Apple, but receives taxes on the money Samsung and Volkswagen make from sales to Americans.
US Treasury Secretary Janet Yellen said Saturday she would try to convince countries with low corporate tax rates that do not support the plan, such as Ireland and Hungary, to join the deal – but that conviction is being increased by the Biden administration’s proposal to increase it of taxes supported for companies based in countries that do not join.
35. This is how many countries had a top tax rate of less than 15% in 2020, according to the tax foundation.
The OECD says multinational corporations have stripped countries of $ 100-240 billion each year – 4-10% of global corporate taxes – by exploiting “loopholes and mismatches between different countries’ tax systems.” This includes taking profits in countries with lower corporate tax rates, which has become easier in a world where goods and services are sold without a business having to set foot in a country. The freedom of choice for multinationals is one reason the average corporate tax rate was cut in half between 1985 and 2018, from 49% to 24%. Yellen has called the trend “a race to the bottom” Zum
What to look out for
Countries have yet to figure out how to implement the complicated new system, which involves reallocating tax revenues between countries, by the next G20 meeting in October. Regardless, the US will try to get the EU to withdraw its plans for a tax on digital services that Google and other big American tech companies refuse to pay.
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The global minimum tax agreement was a win for Yellen. Now she has to sell it to Congress. (Wall Street Journal)