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    Historic Tax Agreement at G7 Summit Will Make Global Ripples

    Grace HoldenJune 08, 2021 4:05 p.m. Historic Tax Agreement at G7 Summit Will Make Global Ripples

    09 Jun 2021

    Representatives of the world’s so-called wealthiest economies (Group of Seven, G7) assembled in Cornwall, England on June 5th to make one of the most historic tax agreements to date. Significantly, these world-leaders agreed upon the installation of a global minimum tax rate that will have far-reaching economic implications all over the world.

    The nations represented in the group are Canada, France, Germany, Italy, Japan, the UK, and the United States. The 2021 Summit of G7 nations also saw invites extended to India, South Korea, and Australia.

    What Have the G7 Nations Agreed Upon?

    The session concluded with two main financial reform proposals that tax campaigners have long anticipated.

    Firstly, the agreement strives to enable any given country to tax the profits made by large companies within that country - rather than the country in which the firm is “located” for tax purposes. It will only apply to “profit exceeding a 10% margin for the largest and most profitable multinational enterprises,” who will then pay 20% tax on residual profits made. This would significantly help reduce global base erosion and profit shifting (BEPS). Last October the OECD estimated that such a reform would alone raise between $5bn and $12bn in additional tax revenue.

    The second reform proposes the establishment of a minimum global corporation tax rate, with official G7 documentation committing to “at least” 15% tax. The framing of the 15% goal suggests that negotiators are open to raising this number, especially given the initial proposal of 21% taxation by the US under Biden’s administration.

    Outside of finance negotiations, talks took place with regards to climate change and the creation of a stronger - more sustainable - global health system.

    What Corporations Will It Affect?

    The new agreements are expected to affect thousands of big tech firms and corporations. Guardian Economics Correspondent RJ Partington expects that the minimum corporation tax rate will catch up to 8,000 multinationals, including oil giants, tech firms, banks, and telecommunications companies.

    Companies like Google, Facebook, and Amazon could certainly see a future in which they pay more corporation tax than they do currently. These big-name corporations are notorious for their hand in global tax avoidance and could finally be held to account under the new agreements.

    How Will it Implicate North African Economies?

    It remains unclear how the decisions will impact North African economies, especially considering the fact that most tax revenue generated by the measures will be concentrated within G7 economies themselves. Many of the nations involved in negotiations are home to big corporation headquarters and could therefore see the most benefit from the proposed reforms.

    The larger G20 summit will see the inclusion of even more global leaders in talks about the tax agreement; Italy currently holds the 2021 G20 presidency. The Tax Justice Network proposes that 15% is an unambitious goal and would have it that the G20 group push for a higher and more inclusive rate of taxation.

    South Africa is the only African country represented in the G20 group, however the German G20 Pres. Morocco is listed as an “African Compact Country” among other nations and stakeholders such as the World Bank (WB), the African Development Bank, and the International Monetary Fund (IMF).

    Fostering sustainable development in African countries and upholding conditions for mobilizing private sector investments are among the principal objectives of the Africa Advisory Group. If the international community is to remain committed to the implementation of CWA initiatives, then perhaps the upcoming G20 summit will see pushes for a more balanced distribution of recovered tax revenue. The idea is to devise a distribution mechanism that doesn’t so dramatically favour already-developed G7 nations.

    In response to the minimum global corporation tax announcement, Alex Cobham - chief executive of the Tax Justice Network - expressed scathing concerns that G7 countries will benefit disproportionately.

    “The world’s eyes were on the G7, hoping that in the face of this global pandemic they would throw their weight behind a new tax system that would bring back home to all countries the billions in corporate tax they were robbed of and urgently need to rebuild and recover,” he said. “Instead, the G7 finance ministers are proposing to follow OECD proposals that would ensure the G7 themselves take the lion’s share of any new tax revenues”

    G7 nations would be set to gain 60% of extra revenue generated by the new tax agreement despite having just 10% of the global population.

    How Long Before New Rules Come into Force?

    The existence of pertinent “sticking points” in negotiations and the typical due course of enacting new financial regulations will likely drag out the installation of these new rules.

    Many big economies oppose the idea of higher-still minimum tax rates and talks are expected to continue as the year progresses.

    Furthermore, the deal only applies to “profits exceeding a 10% margin” which could allow Amazon in particular to avoid paying more tax. With just a 6.3% profit margin in 2020 - due to various aspects of the company’s complex business model - Amazon would almost be exempt from the reforms. Further talks are thus set to include an approach of “segmentation” which would allow Amazon’s subsidiaries to pay tax in their own right.

    Amazon could be laying the groundwork for other multinational companies to reconfigure their operations, offsetting profits in a similar way to avoid the 10% threshold of the new reforms. Rules must still be set by negotiators to prevent this from happening and ensure fairness in the garnering of tax revenue from all of the world’s biggest companies.

    The G20 summit is scheduled for October 2021 and will take place in Rome, Italy, where talks will likely continue on this contentious - yet historic - set of reforms.


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