Financial leaders at the G7 Summit held in Cornwall, England have reached a global tax deal. On Saturday, there was a consensus that companies will pay a uniform 15 percent tax. The US Treasury Department had proposed this as a minimum rate. This agreement could improve tax flows to countries as corporates shift headquarters away from their countries of origin to avoid taxes or to pay minimal taxes. It is a sad reality that salaried and middle class citizens of almost all countries around the world pay more taxes than multinational or huge local corporations as they set up their corporate offices in low tax havens.
The new deal says that companies have to pay a minimum of 15 percent, regardless of the location of their headquarters. Huge corporations including Amazon, Google and more will have to pay additional taxes based on the location at which they sell their services or goods. Having a physical presence in a country is no longer the only criteria to pay taxes.
This never seen before agreement has the potential to do a lot of good around the world. It would also remove contentious issues between the U.S. and Europe as a uniform tax would be implemented on huge corporations who ironically pay zero or single digit taxes. Janet Yellen, Treasury Secretary had earlier mentioned that a uniform global tax would stop “a race to bottom.” In the past and current scenario some countries offer minimal tax rates to attract corporations. These companies then set up their headquarters in countries with low taxes.
The Organization for Economic Cooperation and Development (OECD) has been working on a global proposal from years. This new agreement by the G7 could succeed in closing several loopholes that exist as different countries have different tax rates.
In a statement in London, the G7 said, “We…commit to a global minimum tax of at least 15 percent on a country by country basis.” They also said that this was apt for the digital age and that the right companies would pay the right taxes in the right countries. The countries that are a part of the G7 are
- The United States of America
- The United Kingdom
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