Multinational firms, that are effectively monopolies, despise paying their fair amount of taxes. They'll do everything they can to take advantage of loopholes and reduce their tax liability. The majority of businesses just establish offices in places where tax rates are low or non-existent. They'll have done just enough to avoid paying billions of dollars in taxes at the end of it all. The Global Minimum Corporate Tax Rate is a minimum tax rate that companies must pay regardless of where they are registered.
Why there should be a Global Minimum Corporate Tax?
The goal of major economies is to deter multinational corporations from moving earnings - and tax income - to low-tax countries regardless of where their sales are made. Intangible sources of revenue, such as medicine patents, software, and royalties on intellectual property, are increasingly migrating to these jurisdictions. Companies have been able to avoid paying greater taxes in their conventional home nations as a result of this.
The Biden administration seeks to limit tax base erosion by enacting a globally agreed-upon minimum tax without placing American businesses at a disadvantage.
How Global Minimum Corporate Tax will benefit countries?
To address some of the world's largest firms' low effective tax rates, including digital behemoths like Apple, Alphabet, and Facebook. To prevent the moving of multinational operations and profits overseas, the US has expected the G7 industrial democracies to back the Biden Administration's proposed global minimum business tax of 15% plus.
- It will be more difficult for businesses to move profits offshore.
- It will benefit the United States and other countries that rely on tax rate arbitrage to recruit multinational corporations.
- Keeping footloose enterprises by offering low corporate tax rates.
- Companies' international profits would be subject to the global minimum tax rate.
- As a result, even if countries agree on a worldwide minimum, governments can set their own local business tax rates. However, if businesses pay lower rates in one country, their home governments might "top-up" their taxes to the agreed-upon minimum rate, effectively removing the benefit of transferring profits to a tax haven.
What is Base Erosion and Profit Shifting (BEPS)?
All countries are affected by domestic tax base erosion and profit shifting (BEPS) caused by multinational corporations exploiting holes and mismatches in different countries' tax systems. Because developing countries rely more heavily on corporate income tax, they are disproportionately affected by BEPS.
BEPS refers to multinational corporations' tax planning tactics for "shifting" profits from higher-tax jurisdictions to lower-tax nations. As a result, the higher-tax jurisdictions' "tax base" gets "eroded." BEPS tools are available in corporate tax havens to "transfer" profits to the haven, as well as additional BEPS techniques to avoid paying taxes within the haven.
G7 finance ministers have agreed to support a corporate tax rate of at least 15%, in the hopes of putting an end to decades of tax haven competition to recruit multinational corporations.