G7/Corporate Tax: A difficult but fragile transaction

Unprecedented. earthquake. change the world. Financial leaders of G7 countries are cheering on Saturday Corporate tax transactions. After nearly ten years of negotiations, this is a very bold plan. But the expectation of huge tax profits is wrong.

The agreement has two components. One aims to solve the competition of tax rates by imposing the lowest global corporate tax on large companies. The second component will require the largest and most profitable companies to pay more taxes in the countries where they sell. One-fifth of global profits with a profit margin of more than 10% will be redistributed in this way.

Large companies should prepare for higher tax bills. But how much? Some big numbers are in rounds. EU multinational companies will have to pay about 50 billion euros or 15% more According to data from the European Union Tax Observatory, headquartered in Paris, global taxation.Similarly, the UK will collect An additional £7.9 billion, According to the IPPR think tank.

This estimate seems a bit exaggerated.Expansion of the early OECD estimate Shows that the additional income is less than 4%, or 84 billion U.S. dollars. The largest share will be paid by technology giants to the United States and other multinational companies. Weak anti-tax avoidance rules make it easier for them to transfer profits to tax havens than companies elsewhere.

The second component will reduce the company’s overall costs-up to $12 billion or 0.5% of global corporate taxes. Some well-known companies such as Amazon have a net profit margin of 7.5%, which may not be within its range at all. But even so, the measure is still significant because it will allow the taxation of $100 billion in profits to be transferred between countries.

The United States will bear a large part of the cost for this. Its companies account for 72% of the profits of the world’s 100 most profitable multinational companies. Tax foundationThis will make it difficult to reach the agreement through Congress.

The tax plan should be considered a big deal. In exchange for allowing other countries to tax U.S. multinational corporations, Washington will receive the lowest global tax rate that is widely applicable. This will enable the United States to increase its corporate tax rate without worrying about being weakened by other countries. It will also prompt the United Kingdom, Italy and other countries to eliminate digital taxes.In return, the United States will cancel its Threat Impose tariffs.

If it avoids costly tax and trade wars, then the hype about this long-awaited deal makes sense.

The Lex team is interested in hearing more comments from readers. Please tell us your thoughts on the Global Corporate Tax Agreement in the comments section below.

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