The push for a global corporate minimum tax
How might the imposition of a global corporate minimum tax finally put an end to large corporations evading taxes? Come check out our article to find out.
For decades, countries have competed to attract investment by enticing it with low taxes. This may come to an end soon with a global minimum tax.
Over the years, companies have used the competitive tax environment to avoid paying billions in taxes. As the gap between the rich and the poor continues to grow, this practice has come under fire. Companies making billions in revenue and paying little to no taxes have come under increasing scrutiny in recent years, especially after numerous bailouts and governments reducing social services and security nets to stay afloat. The issue is particularly frustrating for governments as corporations make money in local jurisdictions but don't pay local taxes. Companies have become more adept at ducking taxes as intangible products like drug patents, software, and royalties on intellectual property have become more profitable.
Thus, the Organization for Economic Cooperation and Development (OECD) has been trying to coordinate tax negotiations between 140 countries. Its primary efforts involve taxing cross-border digital services and curbing tax base erosion through a global corporate minimum tax.
Under a global minimum tax system, a company from a member nation will pay a minimum tax on its profits, no matter where it earned those profits. If the company moves its profits to a low-tax country, it will pay the difference between the rates to its home country. For example, if the global minimum tax rate is 20% and a company earns profits outside of its home country in a country where the tax is 15%, it will have to pay the difference (20-15= 5), which is 5% to the home country.
The US has put its weight behind the global minimum tax rate and will support a rate of 15% or higher. While the negotiations are taking place at the OECD, the G7 countries (US, Japan, Germany, Britain, France, Italy, and Canada) hold sway. All of them support a global minimum tax; it is just a matter of agreeing on how much it should be.
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