Corporate Tax

The leaders of Biden and the G7 approve the worldwide minimal corporate tax

U.S. President Joe Biden will vaccinate the world’s poorest countries 500 million times with the Pfizer (PFE.N) coronavirus vaccine during his visit to St. Ives in Cornwall, England on June 10, 2021. Talk about his promise.

Kevin Lemarck | Reuters

Washington – President Joe Biden and the G7 heads of state and government publicly approve a minimum global corporate income tax of at least 15% on Friday. This is one of the broader agreements to update the international tax law of the globalized digital economy.

The leaders also announced plans to replace the digital services tax for the largest tech companies in the United States with a new tax system based on where multinational companies actually do business rather than at their headquarters. I’m going.

For the Biden administration, the global minimum tax system is a concrete step towards the goal of creating a so-called “foreign policy for medium-sized companies”.

This strategy is designed to ensure that globalization and trade are used to the benefit of working Americans, not just millionaires and multinational corporations.

In other parts of the world, GMT aims to end the tax-cutting arms race that led some countries to cut corporate taxes, which are much lower than others, to attract multinational corporations. It is said.

The widespread adoption of GMT will effectively enforce the practice of global companies relocating their headquarters in search of low-tax areas such as Ireland and the British Virgin Islands, even when customers, businesses and executives are elsewhere. You can finish it.

The second major initiative, announced Friday by the Biden and G7 leaders, is “actively” considering expanding the supply of Special Drawing Rights (the IMF’s internal currency) to the International Monetary Fund for low-income countries. “I do” plan.

According to the White House factsheet, the plan aims to expand international development finance to poor countries and help them buy the Covid vaccine and recover faster from the effects of the pandemic.

The White House also said that G7 leaders have agreed to “continue to provide political support to the global economy as long as it is necessary for a strong, balanced and comprehensive economic recovery.”

However, the GMT plan is most likely to have an impact on a company’s bottom line and investor decisions.

The G7 tax deal “will be a starting point for broader agreements in the G20,” a senior government official told reporters about the background to discuss the ongoing talks.

A joint statement by Biden and British Prime Minister Boris Johnson released on Thursday provides an outlook on what to expect from a global tax deal between G7 partner countries.

UK Prime Minister Boris Johnson will speak to US President Joe Biden during the pre-G7 meeting in Cornwall, England on June 10, 2021.

Toby Melville | Reuters

“We promise to find a fair solution for the allocation of tax rights. Market countries exceed the 10% margin of the largest and most profitable multinationals, at least 20 of the profits. We give% taxation rights, ”the statement said.

“We also promise a worldwide minimum tax of at least 15% per country.”

As part of this agreement, “We will enable all businesses to abolish all digital service taxes and other related similar measures.”

The elimination of the digital services tax, a national tax patchwork designed specifically for the largest tech companies in the United States, is a real victory for the United States.

Analysts say abolition The end of the looming new DST of these taxes gives some security to the international tax system, and even if the new global minimum tax increases costs in the near future, it will eventually be big. It will bring long-term benefits to technology companies. Period.

Once the G7 leaders have adopted the GMT proposal, the next step will be to enlist support among the G20 countries, which are different economic groups such as China, India, Brazil and Russia.

In July, the G20 finance ministers and the central bank governor will meet in Venice, Italy. Both the IMF’s funding proposals and international tax plans should be on the agenda.

It is currently unclear whether the GMT program will win the support of 19 member states and the European Union.

Details of the plan have not yet been released, and some G20 countries have kept corporate tax rates relatively low to attract businesses.

Many of the foundations for the introduction of GMT have already been laid by the Organization for Economic Co-operation and Development (OECD). A draft announcement last fall An overview of the two-pillar approach to international taxation.

The OECD Comprehensive Framework for Tax Source Erosion and Profit Transfer, known as BEPS, is the result of negotiations with 137 member states and jurisdictions.

One pillar is a country’s plan to collect taxes on multinational corporations based on the percentage of corporate profits earned by consumers in a given country.

The second pillar is the world’s lowest corporate tax. This is a fixed tax rate of at least 15% that applies even if the tax rate for a particular country is lower.

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