WILL GLOBAL CORPORATION TAX BE SUCCESSFUL? Jess Jones

WILL GLOBAL CORPORATION TAX BE SUCCESSFUL?

The G7 have agreed that they will be setting a minimum global corporation tax rate of at least 15% and this could be negotiated higher in the future. The global corporation tax is seeking to extract more from big tech companies mostly from the US including Apple who decided to locate their European headquarters in Cork in Ireland. This was due to them having the second lowest corporation tax in Europe of 12.5%. However, even with Apple gaining the privilege of a low corporation tax they are in dispute with the Irish government and have been ordered by the EU court to pay back $14m. The idea of global corporation tax is ultimately trying to gain unity between countries and reduce inequality, especially with major TNC’s and aiming to stop countries from undercutting each other.

How will it work? With the global corporation tax there are different “pillars”. Pillar one would apply to global companies with at least a 10% profit margin who must pay taxes where they operate. Twenty percent of any profit over the 10% profit margin would be relocated and taxed in the countries in which they operate. As an example, the UK would raise more tax revenue from large multinationals which would help pay for public services needed. Pillar two in the agreement commits states to a global minimum corporate tax of 15% to avoid countries undercutting each other as I said above.

Why? With global corporation tax major economies are aiming to discourage multinationals from shifting profits and tax revenues to lower tax countries regardless of where their sales are made. Companies have been able to avoid paying higher taxes in their traditional home countries due to income from intangible sources such as drug patents.

Avoiding global tax Finance ministers believe the rules would be difficult to avoid or bypass due to them having the backing of the world's largest western economies. It is also believed that through the strength of the G7 deal low tax member states such as Hungary and Cyprus ( which both have corporation tax below 15%) will not be able to isolate themselves from the world's largest economic powers. With the global minimum tax each country would collect the underpaid taxes of its multinationals helping to stop countries avoiding paying the global tax.

How much would it raise According to the institute for public policy the UK would reap an extra £14.7bn from a 21% global minimum rate. This is obviously higher than the agreed 15% however, many countries are asking for this to be raised. With many countries on board this could see billions of dollars flow to governments which would allow them the chance to pay off some of the debts incurred by the coronavirus crisis. This shows the overall impact that a global corporation tax could have.

Conclusion A global corporation tax will be successful due to it bridging the inequality gap between countries and will stop all undercutting from happening. However with the global corporation tax could reduce the competitive environment which I believe is key for all countries and their economies.