Group of seven nations came up with a landmark accord setting a global minimum corporate tax rate and this agreement Formed the basis of a worldwide deal as Is the finance ministers of 20 of the world's largest economies agreed on Saturday to set a minimum tax rate for corporate income of 15%. This agreement aims to modernize the century-old international tax code and reduce the threat of trade war. Multinational companies will be levied in the countries where they operate instead of just the headquarters. Confuse your big firms operate will get the right to tax at least 20% of the profits exceeding the 10% margin which would apply to the largest and most profitable MNC’s.
This will bring uniformity and end the Trade war where countries have to compete to attract the business giants with low tax rates and exemptions. MNC usually used to locate the headquarters where the tax was the lowest and that’s why they end up paying tax at a much lower rate, This is why small countries' were at advantages but the bigger countries lost the revenues.
The new tax system, which has been agreed upon by 132 countries after the meeting held this month by the group of 20 countries and the organization of Economic Cooperation and development, is expected to take effect in 2023. This new minimum tax rate will apply to the companies with a turnover of €750 million In revenue on the multinationals. The companies in the scope of multinationals with global turnover of €20 billion and a pre-tax profit margin of about 10%. The turnover threshold will come down to 10 billion-year-olds after around seven years.
Global minimum corporate tax may affect ordinary people in several ways because the tax burden on corporate revenue declines, then the burden will shift to wages and labor. Companies that operate across the borders have an unfair competitive advantage as they capitalize on international tax avoidance strategies which are not available to domestic, local companies.
Smaller countries like Hungary and Ireland have argued that it is disruptive to their economic model and has stood against the global minimum tax. Bangladesh also has not many advantages other than a special economic zone. Estonia is also holding out not because it wants to keep low taxes to attract foreign companies but it has already a 20% tax rate and, no company will fall under the new proposal.
Now that The global minimum corporate tax agreement has been signed off by G-20 it is important to figure out how to implement this new complicated system and watch for redistributing tax revenues among the countries.
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