The G-7 (Group of Seven) wealthy democracies had a meeting over the weekend in which they supported the global minimum of 15% corporate tax for multinational companies.
This will help deter the corporate giants from dodging taxes, as many of the involved companies stash their profits in countries providing low rates to avoid taxes.
What is the Group of 7?
The Group of 7 is a forum between the US, Germany, Italy, Canada, Japan, France, and the U.K. Representatives from the European Union also attend. The decisions they come to are not legally binding; however, leaders can use this forum to exert their political influence.
The finance ministers from G-7 countries met in London on the 5th of June. They proposed that not only should there be a 15% corporate tax applied globally, but the biggest companies in the world, which includes the tech giants of the U.S., also pay their taxes in countries in which they do make sales but do not have a physical headquarters there.
Janet Yellen, U.S. Treasury Secretary, said that this agreement “would end the race-to-the-bottom in corporate taxation and ensure fairness for the middle class and working people in the U.S. and worldwide.”
The proposals regarding corporate tax on Saturday were in two essential parts. In the first part, they wanted countries to tax a segment of the profits earned by overseas countries that do not have a physical presence but do make sales. This refers to those companies who earn through selling advertising space.
The second part of the proposal states that countries should set the tax home companies receiving profits from overseas a minimum of 15%. This will help deter companies from shifting their profits to low-tax countries as they will have to pay taxes regardless.