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Minimum Global Corporate Tax – The Changes Imposed by G7 Agreement

by in Business, Economy

Leading economies united in the G7 summit have agreed to impose a Global Minimum Corporate Tax of at least 15%. This decision will have a significant impact on the multinational corporations decitions in the coming years to move their businesses to offshore zones or to countries where taxes are lower.

The tendency of relocating the businesses to offshore or low-income countries is largely found in the pharmaceutical and technology giants, as well as in intellectual property licensing firms. This way they try to reduce the amount of income and profit taxes. In many cases, they sell their services or products less in these countries.

The global minimum tax aims at eliminating this behavior – if the agreement is executed, global corporations registered in the G7 member states will be required to pay the minimum global tax, regardless of where they register their income and profits.

For example, if Abc is a global company registered in the United States and its revenue is registered in Romania, where the average corporate tax rate is 9%, the US will be able to charge the company more tax, within the minimum global tax.

“The G7 finance ministers have reached a historic agreement to reform the global tax system in a way that is in line with the global digital age,” said British Finance Minister Rishi Sunak after a two-day meeting.

A major agreement has already been reached – the minimum Global Corporate Tax will be at least 15%. The exact amount of this tax is yet to be known also when it will be implemented and what kind of corporations it will apply to. More details will be specified in July when the member states of the G20 meet.

In addition to this historical decision, the G7 finance ministers also agreed to make it mandatory for companies to declare their environmental influence. According to them, this will help investors decide which companies are better to invest capital in and at the same time, push companies to reduce their negative impact on the environment.