December 3, 2021

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How does the G20 taxation agreement work for multinational corporations

Leaders of the world’s major economies, and they are these days Collected In Rome for the G-20, they confirmed The agreement to impose a minimum tax of 15 per cent on the profits of large multinational corporations and reduce tax evasion has so far allowed many companies not to pay taxes, or pay only a small part of them, in many of the countries in which they are active. Agreement already found in early October After work coordinated by the Organization for Economic Co-operation and Development (OECD), the organization of 35 of the world’s most advanced nations: but to gain greater political power, it needed the approval of the G-20.

according to ReutersThe agreement is scheduled to be formally adopted on Sunday, October 31, at the end of the G20 and bilateral meetings.

The deal is the result of years of international negotiations, which intensified after the election of US President Joe Biden, who lobbied hard for such a measure and initially proposed a higher rate.

In recent months, there have been several institutional steps that have extended the agreement and included several countries: in july The first agreement was signed between 130 countries, extending to 136 countries in October, including Hungary, Ireland and Estonia who have not yet signed. When the reform is implemented, according to agreements by 2023, it could have serious consequences for the global economy, investment by major companies, and the revenues of many countries.

The basic idea is that multinational corporations will have to pay a tax of at least 15 percent in each of the countries in which they operate. This rule will prevent companies, as they have often done until now, from establishing clear commercial and financial institutions to transfer most of their profits to countries where the level of taxation is lower. This is happening in exotic places in the Pacific but also within the European Union, where Ireland and the Netherlands are notorious for offering very low tax rates and other terms beneficial to multinational companies.

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For the agreement to take effect, the minimum global tax of 15 percent must be applied by each country that signed the proposal. The tax will be applied to multinational companies whose annual turnover exceeds 750 million euros. Companies that bring business and profits to countries that are not party to the agreement will pay the difference between that country’s price and the 15 percent minimum rate in the country of origin. The point of this requirement is to make moving business to other countries unnecessary: ​​companies must pay at least 15 percent no matter where they are located.

Many operational details will be discussed in the coming months, but many exceptions and waivers have already been anticipated for some time. For example, many productive sectors were excluded from the agreement, such as mining, oil, shipping and part of the financial services sector. Moreover, the agreement will be valid only for companies with global revenues of at least 20 billion euros per year and a profit margin of at least 10 percent: As expectedThese thresholds will include hundreds of large companies that belong mostly to the technology, fashion and pharmaceutical sectors.

The agreement states that individual sectors of the company are also subject to the new global tax. For example, while Amazon does not generally meet the agreement’s profit criteria, Amazon Web Services, the cloud computing services segment, may be subject to the tax, which instead generates profits of more than 10 percent.

Another important part of the deal is to change the rules by which states can tax digital companies: It will allow them to tax based on where their goods and services are sold rather than where they are located. For Apple, to understand this, it would not make sense to keep its European headquarters in Ireland.

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According to estimates by the Organization for Economic Co-operation and Development, the new minimum tax will make it possible to get 150 billion dollars annually worldwide, about 130 billion euros, from companies that have so far benefited from lower taxes.

At the moment, it is very difficult to understand the consequences for the economy of individual countries: the US administration estimates that the agreement will allow to increase revenue by 350 billion dollars within a decade, because, according to forecasts, companies are forced to pay. Higher taxes on profits earned abroad will invest more in the United States.