Let’s squeeze more from big MNCs

Source: OECD

Following Biden’s proposal of a global minimum corporate tax, the G7 group reached a historic deal to revamp the taxation for the digital era - taxing multinationals such as Google and Facebook at a rate of at least 15%. 

Wait...what global minimum corporate tax?

As you may be aware, Biden proposed to increase the US corporate tax rate to 28% from 21% to fund the massive infrastructure and social spending plans. 

So it called on other countries to join and set a global minimum - to prevent MNCs’ from moving to lower-tax countries.

That rings a bell..so, are MNCs the main target this time?

Yea, the deal explicitly targets big profitable MNCs, especially tech giants. 

  • The big is targeted:🎯 It will hit the largest global firms with profit margins of at least 10%;
  • 15% or more? These large firms have to pay “at least” 15% tax, and the rate is “a starting point that could be pushed higher.”

Then is it bad news for tax havens throughout the world?

Definitely yes, as they partly use low tax rates to attract businesses. E.g. Ireland @12.5%.

But why did other G-7 members back the US’s proposal? Probably because... 

  1. They’re already adopting a higher tax rate than 15%, or even the US’s level 😂(see graph above)? 
  2. US made a compromise just weeks ago - 15% is significantly lower than the 21% rate it has proposed for its domestic firms.
  3. A 15% rate could generate 41 bln euros a year for US and 48 bln euros for EU members, by estimation.

Only 7 countries in this deal, how does it relate to the rest of the world? Because the deal would soon seek international backing from ①G20 in Venice in July, and ②OECD with 139 countries. This agreement could add important momentum to the coming discussions.

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