Deal To Tax Multinational Companies Endorsed By G20 Finance Ministers

A plan to force multinational companies to cough up their “fair share” of taxes in countries all around the world was endorsed by the finance ministers of G20 countries.

This plan which is aimed at preventing large multinationals to avoid paying taxes also includes a proposal for imposing a minimum global corporate tax rate of 15 per cent.

These taxation proposals are likely to affect large global companies such as Amazon and Facebook.

The taxation framework, which has been prepared and propagated by the Organisation for Economic Cooperation and Development (OECD), has so far been accepted and signed by 132 countries.

The latest agreement at the G20 summit further strengthens and boosts the plan that was endorsed about a month ago by leaders of the G7 major economies in Cornwall.

Following a two-day meeting in Venice, Italy, support for the taxation plan was announced by the G20 finance ministers representing 19 countries that have the largest and fastest-growing economies and includes the European Union as well.

The deal was “historic”, said the UK’s Chancellor Rishi Sunak and added that the plan will ensure the “global tax system is fit for purpose in a digital age”.

There would be “no turning back”, said French Finance Minister Bruno Le Maire.

“We are putting an end to the race to the bottom and the digital giants will now pay their fair share of taxes,” he added. “It’s a once-in-a-century tax revolution.”

The new taxation policy essentially will force companies to pay more taxes in the countries where they generate revenues from and the plan is expected to be discussed for a final consideration by the leaders of G20 at a summit in October this year.

The issue of taxing global companies operating across many countries has for long been a challenge for governments. The increase in numbers and size of the large tech corporations such as Amazon and Facebook has further exacerbated the challenge. 

Under the current global taxation system, multinationals can simply set up local branches in countries that have low corporate taxes and de3clare all the global profits there – effectively paying much lower taxes than otherwise they would have had to. This is because such companies pay taxes at the local rate of tax even if majority of their profits comes from sales in other countries. This is legal and commonly done.

The aim of the new deal for taxation is to stop this from happening using two methods. 

The first is to force companies to pay more taxes in the countries from where they generate revenues and sell their products or services instead of allowing them pay taxes according ot the local rates of countries where they declare the profits. 

The second method is to impose a global minimum tax rate which would help in stopping countries from undercutting each other and imposing low tax rates.

However, countries with lower tax regimes, such as Ireland, are not in favour of the changes and are yet to sign up to the deal.

(Adapted from BBC.com)



Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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