The finance ministers of G7 grouping in London have reached a “historic” deal on taxing multinational companies. Two historic decisions were taken during the meeting.
- The first decision that has been ratified is to force multinationals to pay taxes where they operate.
- The second decision in the agreement commits states to a global minimum corporate tax rate of 15 per cent to avoid countries undercutting each other. The agreement will now be discussed in detail at a meeting of G20 financial ministers and central bank governors in July.
What is Global Minimum Tax?
- The global minimum tax rate would apply to overseas profits.
- Advance countries are aiming to discourage multinationals from shifting profits – and tax revenues – to low-tax countries regardless of where their sales are made.
- Income from drug patents, software and royalties on intellectual property has migrated to low tax jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.
- The global minimum tax would be levied only on the world’s 100 largest and most profitable companies.
- If a company pays taxes somewhere with a lower rate, it would probably have to pay top-up taxes.
