G7 Leaders and the New Corporate Tax
On Saturday, the Group of Seven (G7) announced that both Amazon and Facebook will fall under new proposals for a global minimum corporation tax.
The new proposal aims to tackle tax avoidance by some of the largest and most profitable multinational enterprises. Companies, such as Amazon, have lower profit margins than most of their competitors within its industry. Therefore, European countries were concerned that it would avoid additional taxation under initial proposals to the G7. Finance ministers are now introducing a global minimum corporate tax of 15 percent.
“I am delighted to announce that today after years of discussion G7 finance ministers have reached a historic agreement to reform the global tax system,” said Rishi Sunak, the UK’s Chancellor of the Exchequer. “To make it fit for the global digital age. But crucially to make sure that it is fair so that the right companies pay the right tax in the right places and that’s a huge prize for British taxpayers”.
Countries that have agreed on the deal include the US, the UK, Germany, Italy, France, and Japan. They will ensure that multinational corporations will pay more tax where they operate. By doing so, they can avoid companies setting up branches in countries with lower corporate tax rates. The three companies most likely to be affected the most by the new proposal are tech giants Amazon, Facebook, and Google. Moreover, large Silicon Valley-based tech firms have been accused of not paying tens of billions in tax over the past ten years.
Furthermore, the minimum global corporate tax rate will disincentivize businesses from declaring their profits in countries that are tax havens. As well as this, it will stop countries from attempting to undercut one another. Fortunately, if rates remain uniform across the globe, multinational companies may be more encouraged to remain in the US.