Historic Tax Deal
On Saturday, finance leaders from 7 of the world’s most advanced economies agreed to a historic deal that aims to prevent giant, global companies from shifting their profits offshore.
The Group of 7 agreed to support a 15% global minimum tax rate that companies would have to pay regardless of their location. The deal would end what U.S. Treasury Secretary Janet Yellen calls “a race to the bottom on corporate tax rates” as countries compete to attract multinational companies.
According to the Biden administration’s projected budget released last month, the new global minimum tax rate may bring in $500 billion in additional tax revenue over the next decade. And according to research released this month by the EU Tax Observatory, a 15% minimum tax rate would generate an additional 48 billion euros, or $58 billion, per year.
Leaders also agreed to work toward requiring companies to publish their impact on the environment in a way that makes it easier for investors to determine whether to invest in them.
The Group of 7 will have to persuade finance leaders from a larger group of 20 countries to agree to the new deal next month. However, gaining broader support won’t be easy. For example, Ireland opposes the 15% minimum tax rate, stating it would be disruptive to its economic model, which currently has a 12.5% tax rate.
Many investors also oppose the plan, arguing if the corporate tax rate in America rises to 28% and the global tax rate is only 15%, we could see American investment and manufacturing shift overseas.
Do you think it’s time for a global minimum tax rate?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.