On June 5, the Finance Minister of the G7 announced
the organization’s support for a 15% global minimum corporate rate. The announcement by the seven-member group of the world’s largest economies is a landmark event following years of negotiations on this issue.
Imposing a global minimum tax rate on corporations has long been advocated by the Organization for Economic Cooperation and Development (OECD) as a way to counter the pressure that large multinationals wield on individual countries to lower their corporate tax rates so as to attract those business’s headquarters. But the 139-member body has been unable to reach an agreement on this issue, making the G7 announcement a significant breakthrough.
The G7 decision has already drawn public support from larger tech companies, such as Amazon and Google, even as it would force them to pay taxes in the countries where sales are made, regardless whether they have a location in that country. The idea is not supported by low-tax countries such as Ireland, with a 12.5% rate, whose officials have argued that low tax rates are needed by smaller countries which lack the plentiful financial and workforce resources available in larger economies.
The G7 action follows closely on the heels of a Biden administration announcing support for a proposed rate on a potential global minimum tax rate agreement with the OECD of 15%. Treasury issued a release
on May 20, 2021, saying they received a “positive reception” from representatives from other countries during the OECD tax steering group meeting. However, Treasury made clear that this proposed rate is a floor and officials suggested that negotiations should continue to push for a higher rate.
In addition to the global minimum corporate tax rate, U.S. officials expressed their desire to:
- Stabilize the international tax architecture
- Instill fairness in the global playing field
- Create an environment of cooperation between countries to maintain tax bases and ensure that the global tax system is equitable and equipped to meet the needs for this century’s global economy
The G7 agreement has no binding authority, however, and the corporate tax rate in the United States already is at 21%, with the Biden administration advocating an increase to as much as 28%. For Biden, the agreement helps address concerns that raising the corporate tax rate here would put the nation at a competitive disadvantage with low-tax countries.
The global minimum corporate tax rate proposal is likely to be discussed at next month’s G20 Finance Ministers meeting.
Washington National Tax Office
+1 202 861 4104
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.