G7 tax policy and reforms
Economy
On June 5, the G7 nations reached a historic and perhaps an overdue agreement.
The agreement is to make the big international companies of the world pay up and bring forth tax equality to level the playing field.
What is the G7?
The Group of 7 (G7) is an informal collective of some of the wealthiest & advanced economies comprising — Canada, France, Germany, Italy, Japan, United Kingdom and the United States.
The G7 represents over 46% of the global GDP and can boast of accounting for upwards of 62% of the global net worth or a total of $280 trillion.
G7 2021
The 47th G7 Summit is to be held from June 11–13, 2021 and will be presided over by the UK. On June 5, under the chairmanship of the UK Chancellor Rishi Sunak, the G7 shook on the Global Tax Reforms Policy which he likes to call a “Tax Policy fit for the 21st Century”. He also mentioned the policy design stresses to ensure that “The right companies pay the right tax in the right places”.
Key takeaways of policy
- MNCs will pay taxes in their physical place of business and not just their home country
- Only global giants with a profit margin greater than 10% are scoped
- 20% of any profit over this 10% will be taxed in the country of sale
Finally, and perhaps the most revolutionary agreement has been to fix a Global Minimum Corporate Tax of 15% in the country of Operation.
This means that the MNCs will no longer be able to set up operations in developing or poor countries with low tax rates and enjoy tax holidays.
Interestingly, Amazon is not expected to be caught by this element of the reform
A communique from G7 ministers said that they envisaged that the rules would only apply on “profit exceeding a 10% margin for the largest and most profitable multinational enterprises”, a restriction that could rule out Amazon.
Amazon’s profit margin in 2020 was only 6.3%.
The G7 Summit 2021 calls for a special mention since it marks a cornerstone moment in world history. It was at this summit that the first steps towards suspending oppression of the “weak” at the hands of “strong” were taken. Will the balance of power now finally be restored? Or will the Big Daddies of the world find yet another loophole?
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