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G7 agree a minimum corporation tax rate on multinationals

Sunday 6 June 2021

An international agreement to discuss with a class

G7 agree a minimum corporation tax rate on multinationals

On Saturday 5 June the G7 leading industrial nations (US, the UK, France, Germany, Canada, Italy Japan, and the EU) have just signed a landmark agreement which sets a minimum rate of corporation tax (profits tax) on multinational companies.

The rate is set at 15% which means no country that is part of the agreement can set a tax rate below this level. As a result of this, major multinational corporations such as Google, Facebook and Amazon will have to pay 15% of their profits to the country where they do their operations rather than locating an office in a country with a low tax rate and paying their tax there.

This transnational tax agreement has two principal objectives:

  • The G7 countries will force companies to pay more tax in the countries where they are selling their goods and services and stop the businesses declaring their profits for taxation in an office located in a country with a low tax rate.
  • By having a global minimum tax, countries cannot undercut each other with low tax rates. This stops a country setting a very low corporation tax to attract investment from large multinational companies. This leads to countries competing with each other to attract multinationals by using lower and lower tax rates.

Many of the G7 countries wanted to set a rate above 15% with US President, Joe Biden looking for a rate above 20%. The rate of 15% is possibly a starting point. The G7 now want their agreement to be extended to the wider G20 group of nations, including China, Argentina, Australia, and South Korea.

Some points for class discussion:

What are the challenges of getting an international agreement on taxation?

What are the advantages of collecting more tax from major multinational businesses like Amazon and Apple?

Are there any disadvantages of this minimum tax agreement?



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