Taxes and more taxes: the G7 way of dominating companies

Taxes and more taxes: the G7 way of dominating companies

It has been one of the biggest global economic milestones in recent months. The agreement reached by the G-7 to impose a minimum global tax on companies represents a first but decisive step in the design of a fiscal board on a global scale more egalitarian.

In the crosshairs of this minimum global tax are the large multinationals. According to the current rules of the game, companies can establish their branches in any country and declare their profits there, even if they come from other states. This has caused large companies to establish themselves in nations with lower tax systems to obtain a huge tax benefit.

In a more graphic way: the Corporation Tax of the OECD countries is 21,5%; in Poland, however, it is 19% and 12,5% ​​in Ireland, to give two examples. This has meant that, especially in the second case, many multinationals have decided to settle there to pay less taxes, although most of their profits come from other territories.

With that minimum global tax it would be about avoiding this "business leakage" and force them to file and pay taxes where they make a profit. This measure would especially affect the global technology giants, but also large pharmaceutical or electronic commerce companies. What remains to be seen is whether or not it will affect investment funds and real estate investment trusts.

Essential aspects of the agreement

The agreement reached by the G-7 raises two fundamental questions. On the one hand, that the measures for large corporations to pay taxes where they operate will be applied to those companies that earn a profit margin of at least 10%. Above that figure, 20% would be taxed in the countries where they operate.

On the other hand, the compromise establishes that minimum global tax. A tax rate that would be 15% on foreign earnings. The agreement would not imply that countries should change their tax system, but it would imply that the companies' countries of origin can claim the application of this new tax in case they declare their profits in other states with more lax tax systems.

The background of the agreement would not be only achieve a better balance in the tax system Worldwide. It must be taken into account that this minimum global tax would give a break to public coffers, decimated to limits difficult to sustain after the COVID-19 pandemic and the health and economic crisis that it has caused.

The minimum global tax, still in the air

The G-7 agreement for the application of the minimum global tax to companies has already made history, but there is still a long way to go before it becomes a reality. Do not forget that everything related to international taxation depends on reach a consensus among OECD member countries.

For now, the compromise reached will be put on the table again, this time at the meeting of finance ministers of the G-20, to be held in July in Venice. Then it would be necessary to reach an agreement within the OECD, which has been working on the design of a new international tax scenario for some time.

Therefore, there is still a lot to negotiate, as countries like Ireland, with tax rates well below the OECD measure, have already expressed their doubts about it.

En Foster Swiss we are consultants specialized in international banking and low-tax territories. We can quickly and seriously resolve any questions about this and many other aspects related to investments.

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