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G20 in Negotiations for Corporate Minimum Tax Rate

Contributed by ICD Fiduciaries
April 23, 2021

The international forum G20 has announced that they are keen to agree on a minimum tax rate for international company profit taxation. G20 hope to implement the regime by the middle 2021.

At the moment the USA Secretary of the Treasury Janet Yellen is in active discussion with the rest ofthe G20 member countries to create minimum tax rate for international company profit taxation. The opinions differ: some believe and support the ideology behind it, others are concerned about the implementations and self-imposted deadlines.

The idea of creating united tax that closes loopholes and avoidance of tax has become popular over the years, however, the search has been made more urgent by the Covid-19 pandemic and risen government debt. The negotiations that included a minimum tax rate and assignment of taxable profits among the countrieshadalreadystarted in October 2019.

The main idea is to focus on the location of the customers not where the company's headquarters arebased. In other words, for example, the new implemented tax could rise taxation of the USA IT companies in Europe.

Regardless of the support coming from the governments, it is difficult to settle the level at which that rate would be set. The president of the USA advised toincrease the corporate tax rate from 21% to 28%. It would also impose a 21% minimum tax on U.S. companies' foreign income, saying that this could equalize the competition among the sector and eliminate advantages that foreign companies have because of their low tax costs.

On the one hand, proceeding with such taxation among G20 member countries reduces inequalitycreated in finance sector, however, on the other hand, it does the opposite. Aprovision that would deny tax deductions to companies that send payments from the U.S. to related entities in low-tax jurisdictions where they pay less than the internationally agreed-upon minimum tax.In fact, according to Biden's plan, the minimum-tax rate of 21% would apply to countries that does not accept the agreement. Regardless, also the Biden's plan intent, that the companies that report large profits to investors but low tax payments the minimum tax rate would be at 15%.

European governments believe that the USA technology companies should pay them a higher tax and have introduced various special levies on digital services, partly to increase revenue and partly to keep up the pressure on a global agreement. As these levies threaten to tax the same profits more than once,technology companies categorically oppose and say they would prefer a globally agreed reform.

Overall Computer and Communications Industry Association is ambitious about the coming global tax reform; however, in their opinion, it should be made under the right conditions and made with reasonable terms. They believe that the updated international tax system can help the economy to recover and develop legislation.


Tags: tax | tax rates | G20



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