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Home Economy

G20 approves new tax mechanism for multinational companies

Ursula Curtis by Ursula Curtis
July 10, 2021
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German Finance Minister Olaf Scholz said on Saturday that the G20 had reached an agreement on implementing a new tax mechanism for multinational companies, which will cover 130 countries and jurisdictions.

“The G20 countries are here today in agreement on the desire to create a new international tax system,” the Spanish news agency EFE quoted the German official as saying in statements to the media in Venice.

G20 finance ministers and central bank governors met for two days in Venice and reached a political agreement to support this system led by the Organization for Economic Co-operation and Development (OECD), which will try to prevent multinational companies from fleeing to taxes or shifting their profits to benefiting tax havens, i. It works with a digital base, Efe. This new system rests on two pillars: attributing a percentage of corporate profits, particularly digital ones, to some jurisdictions so that they pay taxes where they operate even if they do not have a physical presence; A minimum tax of 15% is applied to companies with a turnover of more than 750 million euros.

For Schultz, this is “a great historical moment that deserved a lot of applause in the room, as everyone realized that something important was happening.”

When asked if it would be possible for some of the more conservative European countries, such as Ireland, Hungary or Estonia, which have attracted private investment due to low taxes, to agree to the agreement, the government official was convinced they would.

“I’m pretty sure there will be a deal in October,” he replied, arguing with the great persuasion of the G20 that “represents 90% of global GDP.”

For several years now, the Organization for Economic Co-operation and Development has been discussing a tax proposal that adapts to the globalized and digital economy, with the aim of demanding taxes from multinational corporations, which pay them where they are most convenient.

Many countries even called for a global minimum corporate tax of 25%, but at the end of May the US administration proposed a rate of at least 15% in favor of a global agreement.

In early June, the G7 finance ministers reached an agreement to apply a minimum corporate income tax (IRC) of 15% to corporate profits, thus creating a level playing field for businesses and coverage of multinationals in particular.

Implementing a minimum IRC would make it possible to combat tax evasion, as larger companies currently localize their revenue where it is more tax-friendly, without having an effective presence in all the jurisdictions in which they operate.

A study by the recently created European Union Financial Observatory revealed that Portugal could raise 600 million euros this year if it taxed the profits of multinationals at 25%, while the area of ​​society as a whole would receive nearly 170 billion euros.

If the EU adopts a minimum of 21% or 15%, the combined tax revenue will be, respectively, 98 billion euros and 48.3 billion euros, at both rates, and Portugal will receive close to 100 million euros.

The Organization for Economic Co-operation and Development intends to reach a global agreement in principle at the G-20 meeting, which will take place this week in Venice, and then at the last meeting in October.

Founded in 1999, after the successive financial crises of the 1990s, the G20 is a group comprising the finance ministers and central bank chiefs of the world’s 19 largest economies as well as the European Union, which aims to analyze and promote debate among wealthier and emerging countries on policy issues related to promoting stability International Finance.

They include South Africa, Argentina, Brazil, Canada, the United States, Mexico, China, Japan, South Korea, India, Indonesia, Saudi Arabia, Turkey, Germany, France, Italy, Russia, the United Kingdom, and Australia.

Ursula Curtis

“Writer. Analyst. Avid travel maven. Devoted twitter guru. Unapologetic pop culture expert. General zombie enthusiast.”

Ursula Curtis

Ursula Curtis

"Writer. Analyst. Avid travel maven. Devoted twitter guru. Unapologetic pop culture expert. General zombie enthusiast."

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