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G7 Reach Agreement on 15 Percent Global Corporate Tax Rate

impuesto corporativo

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Members of the G7 (a group of the world’s leading economies comprising the United States, Japan, Germany, France, Great Britain, Italy and Canada) agreed to set a minimum corporate tax rate of 15%.

The agreement comes after months of negotiations between the United States and the other G7 members to agree on a tax that all corporations must pay regardless of the country in which they are located.

Since Janet Yellen started her job as Treasury Secretary, she has focused on the implementation of this tax unilaterally between the United States and the other members of the G7. (Image: EFE)

The meeting of G7 members also agreed on new rules to change the way countries tax digital economies, which increasingly occupy a larger percentage of economic activity. One of these new rules will be to tax those large technology companies that have a minimum profit margin of 10% on sales in G7 countries.

Some countries such as the United Kingdom and France had already gone ahead to implement their own minimum corporate sales tax. In France this corporate tax had been reinstated by Emmanuel Macron in 2020 with the objective of charging on 3% of sales made in the country to any company with revenues exceeding €25 million in France or €750 million internationally.

This minimum corporate tax of 15% will allow countries to tax technology companies such as Facebook, Google or Amazon, simply for the fact of exercising activities within their respective countries, regardless of the location of their headquarters.

Although it is not yet clear what the impact on companies such as Facebook and Amazon will be, some analysts report that each country should impose its sales tax individually.

In 2020 an attempt was made to implement a minimum corporate tax in the European Union, however the so-called “google tax” was blocked by Ireland and the Nordic countries. Countries such as Ireland have benefited from maintaining relatively low corporate tax rates and have attracted numerous multinationals to establish their headquarters in the country.

Although the G-7 countries reached an agreement on the need to implement this corporate tax, the adoption of the tax will still have to be discussed in the respective legislatures of each country.

While in parliamentary regimes where the head of government has a clear majority, the implementation of the 15% tax could happen relatively quickly, in countries such as the United States, where the government has a slim majority, the debate could drag on for months without reaching any consensus on the feasibility of the tax.

The next step will be to get the approval of this tax among G20 members, which include G7 members and other emerging economies such as Brazil, India and China. (Image: EFE)

President Joe Biden revealed last week his willingness to drop the corporate tax increase from 21% to 28%, provided he could pass the minimum corporate tax floor of 15%. This concession is made in order to gain support within the Republican Party for the current administration’s planned tax reform and to convince skeptical senators within the Democratic Party itself.

The agreement has yet to be presented to the G-20 nations (which includes the G-7 nations plus emerging economies such as China, India, Brazil and South Africa). In that regard, the finance ministers of the G-20 member nations will meet in Venice in early July to agree on a resolution on the global tax.

Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica

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