Multinational companies enjoy benefits from all over the world, and it now high time they give back to the various countries they are stationed in. This new development was necessitated by the need to account for revenue acquired by all businesses in a country, and every operation has to be taxed. A company with a web channel in various countries tends to gather more profits; hence, the countries in that economic web also need to benefit. Some countries are lenient towards foreign investment due to political or social reasons, leading to tax evasion by foreign companies.
World leaders have finally put a cap to such an economic trend by multinational corporates as they agreed to have a universal global minimum corporate tax of 15%. Under this agreement, every company that operates in many countries will be required to pay this pegged tax percentage. It has been agreed to be the fairest percentage considering the profit margins enjoyed by the huge businesses. When it comes to doing business in a certain location, it is normal for businesses to pay tax for their operations. Some companies have initiatives to give back to the communities through various projects such as building houses or schools, fixing roads, and employing the local people.
Most mining companies are said to leave a trail of land degradation and ship all the profits to their native country. But certain organizations are known for amassing wealth in a country then shipping all the finances to their country of origin while leaving their operating area dilapidated. This is the norm, especially with corporations established in most developing countries, where it has been reported that these business people just come to loot then leave after exhausting the country’s resources and finances. Hence, the 15% tax is the appropriate way of ensuring that everyone benefits from the economic activities undertaken in their back yard.
The 15% tax agreement came into life after 130 countries and jurisdictions concurred on the idea while giving their approval by signing up for the reforms. G7 countries were the main driver of this tax reform, so giants in the world economy backed it up. With Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States pushing for reform, it was inevitable for the tax reform to be implemented. Those countries control about 90% of the world’s economy, so their input is greatly valued [Source].
This decision is a formal approval and a follow-up after it was launched at the G7 meeting in London last month [Source]. G7 Finance ministers devised a remedy against the tax abuse by some multinational companies. Even the most prominent corporations were also involved in tax abuse, so this was now an economic strategy. US president Joe Biden had suggested that the minimum rate should be 21% due to the surging revenue gained by these businesses. But after persuasions and discussions, the number was dropped to 15% to make it attractive to other stakeholders and be more acceptable to various countries [Source].
The tax reform also includes digital companies such as Google, Facebook, and Amazon, as they have also been profiting on large horizons but only giving back crumbs to the nations. The Organisation for Economic Co-operation and Development (OECD) made a statement citing this new development and giving an insight into all the contributors. According to the OECD, countries such as Ireland, Hungary, Estonia, Barbados, Kenya, Peru, Nigeria, Sri Lanka, and St Vincent & the Grenadines are still yet to sign on the reform. However, discussions are still going on to gain support from more countries. Some countries and jurisdictions have low tax rates, so they were not part of these proceedings.
Tax havens territories which include the British Virgin Islands, Cayman Islands, Bermuda, Netherlands, Switzerland, Luxembourg, Hong Kong, Jersey, have a low or zero tax corporates taxes, hence the title “tax haven,” which means corporates are not mandated to pay any reasonable tax when operating in those areas. But these havens might soon disappear under this new reform because the Cayman Islands and Gibraltar tax havens signed the deal so that others might follow.
The OECD is pleased with this move, especially after all the G20 countries have pledged their support for this global tax reform.