G7 / corporate tax: a tough but fragile deal

Unprecedented. seismic. Change the world. Finance chiefs of the G7 countries reached the superlatives and applauded what came on Saturday Corporate tax deal. After nearly a decade of talks, it was a remarkably bold plan. But expectations of massive tax gains are misplaced.

The agreement has two components. One aims to tackle the race to the bottom over tax rates by imposing a global minimum corporate tax on large corporations. The second component will require larger, more profitable companies to pay more taxes in the countries in which they make their sales. A fifth of its global earnings in excess of 10 percent of its profit margin will be reallocated in this way.

Big companies should prepare for higher tax bills. But how much? Some large numbers make the rounds. EU multinationals will have to pay around 50 billion euros or 15 per cent More in taxation globally, according to the Paris-based European Union Tax Observatory. Similarly, the United Kingdom will collectجمع An additional 7.9 billion pounds, according to the IPPR Research Center.

Such estimates seem exaggerated. Expand the scope of the former OECD Appreciation It indicates additional revenue of less than 4 percent, or $84 billion. The largest share will be paid by tech giants to the United States and other multinational companies. Weak anti-avoidance rules have enabled them to move profits into tax havens more easily than companies located elsewhere.

The second component will cost companies less overall — a maximum of $12 billion or 0.5 percent of global corporate tax revenue. Some high-profile companies like Amazon, which has a net profit margin of 7.5 percent, may be completely out of their scope. But this measure is important even then, because it will allow to switch tax rights on profits of $ 100 billion between countries.

The United States will pay a large portion of the bill for this. Its companies account for 72 percent of the profits of the world’s 100 most profitable multinational companies, according to Tax Foundation. This will make it difficult to get this agreement through Congress.

The tax plan should be seen as a big deal. In exchange for allowing greater taxation of US multinational corporations by other countries, Washington would get a minimum universal tax rate that is widely applied. This would allow the United States to raise the corporate tax rate without fear that other countries would undermine it. It would also push the UK, Italy and others to forgo their digital taxes. In return, the United States will cancel A threat to impose tariffs.

The hype around this long-awaited deal will be justified if you avoid a costly tax and trade war.

The Lex team is interested to hear from more readers. Please let us know what you think of the global corporate tax deal in the comments section below.

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