G 7 NATIONS AGREE ON MINIMUM CORPORATE TAX

G 7 NATIONS AGREE ON MINIMUM CORPORATE TAX

Subject: International Relations

Context: The Group of Seven said it would back a minimum global corporation tax rate of at least 15%, and put in place measures to ensure that taxes were paid in the countries where businesses operate.

Concept:

• Major economies are aiming to discourage multinationals from shifting profits — and tax revenues — to low-tax countries regardless of where their sales are made.
• Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.

Global minimum tax

• The global minimum tax rate would apply to overseas profits.
• Governments could still set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the minimum rate, eliminating the advantage of shifting profits.
• The OECD said last month that governments broadly agreed on the basic design of the minimum tax but not the rate.
• Other items still to be negotiated include whether investment funds and real estate investment trusts should be covered, when to apply the new rate and ensuring it is compatible with U.S. tax reforms aimed at deterring erosion.

What about that minimum rate?

• Talks are focusing around the U.S. proposal of a minimum global corporation tax rate of 15% – above the level in countries such as Ireland but below the lowest G7 level.
• Any final agreement could have major repercussions for low-tax countries and tax havens.
• The Irish economy has boomed with the influx of billions of dollars in investment from multinationals. Dublin, which has resisted EU attempts to harmonise its tax rules, is unlikely to accept a higher minimum rate without a fight.