The G7 group of nations have agreed to an accord to set a minimum corporate tax threshold of 15% in a bid to prevent large multinational corporations from simply setting up their profits and tax renenues in countries or territories that have lesser corporate tax even if most of their sales come from other countries where they have chosen to avoid tax, which has been seen in bad faith by many nations and which is a practice that can be quite impactful to economies. This can often in-turn lead to countries moving into a war-of-sorts where corporate tax is lowered to try and attract multinational companies to them and in turn then leads to other countries lowering them in-turn to attract them back, a race to the bottom as it has been called.
The G7 accord is hoped to be the beginning of setting a global minimum corporate tax rate to avoid the issue.
I myself certainly agree with their being a global minimum corporate tax and that it will ultimately be better for the economy and may hopefully lead to less compensation elsewhere, perhaps if this does really end up taking off, we might be able to see a deduction in taxes for lower brackets and also reduction in taxes that affect individual citizens. I also hope that eventually, if all goes to plan, the corporate minimum tax can be raised to at least 20-25% as 15% is still quite low (OECD average is 21.5%). It would certainly be something that boosts economies.
It is also important to note that countries would still be able to set their own local corporate tax rates, it is just when or if companies pay lower taxes in another country, then home countries can then top-up the taxes to the minimum rate (the global corporate tax), and then that makes multinationals who shift their profits to avoid taxes to get no benefit from doing so, which would eliminate the practice.
Of course, the big problem is getting it to become a global agreement, G7 is only the start and includes countries (Canada, France, Germany, Italy, Japan, United Kingdom, and the US) who generally get along well anyway and so it was, really, the easiest first step. Many hope the G7 agreement can be reflected in the much larger G20, a grouping that includes countries such as Russia and China, who are more resistant and argumentative towards the West, and as well as that many other countries may also generally have their own reasons for why they don’t want a global minimum on corporate tax, such as Ireland whose low corporate tax massively benefits its economy, and which has caused tensions with the European Union.
So, although it is still a long road ahead, it is also exciting that the first big step has been taken starting with the G7. Ultimately, I do believe there will be some kind of agreement, and once the largest and most powerful countries follow, it should lead to most countries falling in line. But it is still a very significant step, that cannot be underestimated and is a reason to realize that the journey probably won’t be easy, and there will be many that put up a protracted fight against it.
Multinational corporations are wealthy and powerful and it is only fair that they pay their fair share towards the economy. Their greed only damages those below them, the smaller companies, and the citizens of countries. I also believe competition needs to be made easier as well, especially in the Big Tech sphere, but that’s a topic for another blog post.
It only makes sense in a world that’s more connected and easy to traverse than ever, a world that is becoming incresingly globalised, that more of these global solutions are going to be necessary to prevent exploitation and also fix various other issues.
I shall now get back to work on my larger projects, apologies for how long it is taking… but I am only one person, and I want the end result of these projects to be as good as they can be, where I am happy with them. So stay tuned.
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