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Unprecedented. Seismic. Changing the world. Financial leaders in G7 countries achieved superlatives when they praised Saturday corporation tax agreement. After nearly a decade of conversations, it’s a bold plan. But the expectations of wonderful taxes are not out of place.
The agreement has two components. One aims to tackle the race on tax rates by imposing a general corporate tax on large companies. The second component would be to pay more taxes in the countries where the largest and most profitable companies make sales. This would relocate one-fifth of global profits that exceed the 10 percent profit margin.
Large companies should be prepared to get higher tax bills. How much? Some big numbers are making the rounds. EU multinationals would have to pay around € 50 billion or 15 per cent more in taxes worldwide, according to the EU-based Paris Tax Observatory. It would also bring the UK together 7.9 billion euros more, According to the IPPR think-tank.
Such estimates seem exaggerated. Earlier enlarging an OECD estimate it suggests additional revenue of less than $ 4 or $ 84 billion. Most of the technology giants would pay the US and other multinationals. Weak anti-avoidance rules can make it easier to take profits to tax havens than companies elsewhere.
The second component will cost companies less overall – up to $ 12 billion or 0.5% of global corporate tax revenue. Some high-profile companies, such as Amazon, with a net profit margin of 7.5 percent, may be outside its scope. But the measure is significant nonetheless because it would allow for the distribution of $ 100,000 billion in tax rights between countries.
The US would pay a large part of the bill for this. His companies represent 72% of the profits of the 100 most profitable multinationals in the world Tax Foundation. This will make it difficult to reach such an agreement through Congress.
The tax plan should be considered a great bargain. In exchange for other countries allowing higher taxes on U.S. multinationals, Washington would achieve a globally applied minimum tax rate. This would allow the U.S. to raise its corporate tax rate without fear of lowering it for other countries. The UK, Italy and others would also push for lower digital taxes. In return, the US would cancel it threat to set rates.
The uproar over this long-awaited agreement would have been justified if it had prevented a costly tax and trade war.
The Lex group is interested in hearing more from readers. Tell us what you think of the general agreement on corporation tax in the comments section below.
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