The Group of 7 (G7) countries have backed a proposal to impose a general international corporate tax, which would aim to prevent international businesses from tax evasion and also to target tax havens due to low-level authorities.
An agreement to accept the standard tax rate was reached at the G7 finance ministers meeting held in Buckingham on June 5, under the auspices of British Exchequer Chancellor Rishi Sunak.
Sunak, in a statement following the summit, said seven high-income economies had agreed to “transform the global tax system to suit the world’s digital age and, more importantly, ensure that the right companies pay the right tax in the right places”.
What exactly does a suggestion mean?
The tax proposal approved by the US, UK, France and other G7 countries has two parts. A major part of the proposal states that countries around the world should pay at least 15 percent of the profits of their domestic companies overseas.
This 15 percent of the world’s lowest corporate taxes can prevent the practice of using accounting schemes to move profits to a few low-income countries.
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Companies that participate in tax evasion use the modus operandi above. As more and more branches are spread out in various locations, they transfer most of their profits to accounts set up in countries that offer very low tax rates.
Typically, these tax havens are in the Caribbean Islands such as the Bahamas or the British Virgin Islands, or in some cases, countries like Ireland where the corporate tax rate is 12.5 percent – lower than the recommended minimum price of 15 percent.
The second part of the proposal the G7 countries have accepted allows countries to pay part of the profits made by “invisible but highly marketable” companies, for example by selling digital advertising.
The G-7 statement echoes the American proposal to allow countries to pay a portion of the salaries of large and profitable companies – digital or not – if they do business within their borders. It also supports countries that offer tax-exempt 20 percent or more of profits in excess of the 10 percent interest rate.
How will it affect firms like Amazon, Facebook and Google?
Part of the G7’s proposal that states that countries will tax corporate profits not physically available but recording high sales in their territories, is expected to persuade companies that rely on that digital to drive their profits.
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The agreement, in other words, states that firms will not only pay taxes in countries where they work physically, but also in countries where they make a profit by being online.
However, part of the agreement states that countries will have to waive their digital services tax after the introduction of a standard international company tax, will ultimately benefit Silicon Valley companies.
Countries like France have imposed a tariff on digital services and will remove them in favor of an international agreement. The US views those independent digital taxes as unfair trade measures that favor American technology companies such as Google, Amazon and Facebook.
How did digital heaters respond to the G7 proposal?
Despite the fact that companies such as Google, Facebook and Amazon will have to pay a higher tax rate if this proposal is made, most digital smokers have accepted the G7 agreement.
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“We strongly support the work being done to renew international tax laws. We hope that countries continue to work together to ensure that a balanced and firm agreement is finalized soon,” Google spokesman José Castañeda told Reuters in a statement.
Facebook, which has also adopted the G7 agreement, has called on the international community to be aware that it supports the proposal even though it will have to pay more taxes.
“We want the international tax reform process to succeed and we know that this could mean that Facebook pays more taxes, even in different areas,” said Nick Clegg, Facebook’s vice president of international affairs.
“We believe that the OECD-led process of creating a multilateral solution will help bring stability to the international tax system. The G7 agreement marks a welcome step forward in the effort to achieve this goal,” an Amazon spokesman was quoted as saying. .
When can we start a standard tax agreement?
The proposal, agreed upon and made jointly by the G7 group, will be presented before the Group of 20 (G20) states what is expected to meet in July for a meeting. Since the latter group includes many developing countries, there may be shocks at odds with the proposed treaty.
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According to the Oxfam campaign group, the agreement reached by the G7 itself will require further negotiations to achieve the intended objectives.
“It is absurd that the G7 claims to ‘replace the broken global tax system’ by introducing lower corporate taxes such as tariffs levied by taxpayers such as Ireland, Switzerland and Singapore.
“Preventing the explosion of inequality caused by COVID-19 and tackling the climate crisis will not happen if companies continue to pay taxes. I expect most countries to accept the crumbs on their table.”
