Taxy

The G7's historic global tax agreement: corporate giants should pay at least 15%

Tuesday, June 8, 2021 by Robinhood Snacks | Disclosures
_The mood at Dublin tech pubs [mihailomilovanovic/E+ via GettyImages]_

The mood at Dublin tech pubs mihailomilovanovic/E+ via GettyImages

Fly like a G7... and drop bad news on Big Tech. The Group of Seven = the US, UK, Canada, France, Germany, Italy, and Japan. The G7 met in London over the weekend — and left with some tea to spill: the countries agreed that multinational companies should pay a minimum tax rate of at least 15% in each country in which they operate.

  • For a long time, companies like Google and Amazon have been plopping their international headquarters in countries with low corporate tax rates.
  • Think: Ireland, which has a 12.5% tax rate, hosts the European HQs of many tech and pharma giants. That's created beef with Germany, France, and other EU countries where these companies also operate (they want more tax money).

The luck of the Irish... may end. The deal marks a big step toward potentially adopting a 15% global minimum corporate-tax rate. That Dublin office = not so clutch anymore. Companies would have to pay the minimum rate regardless of where they're based. The agreement aims to stop large multinationals from seeking out tax havens —  and force them to pay more of their income to governments. But it still has to go through the G20, which includes China, India, and other developing economies.

THE TAKEAWAY

This could level the playing field... and end the "race to the bottom." For decades, countries have been competing with each other to attract corporate investment for economic growth. The main way to do that: lower companies' taxes. In 2000, more than 55 countries had corporate tax rates above 30% — now, fewer than 20 do. President Biden wants to raise corporate taxes in the US to fund government programs. The admin is backing a 15% global minimum to help keep the US competitive.