June 7, 2021 | AtoZ Markets-The finance chiefs of the seven most economically advanced countries in the world (G7) have decided to commit themselves unanimously to the issue of taxation.
At a meeting last Saturday, the world’s top leaders decided to levy a tax of around 15% on so-called “big business”, which mainly includes some of the world’s largest technology companies.
But What Does This Really Mean for Large Corporations?
It is no secret that many large corporations look for countries where taxes are lower in order to reduce their tax burden and improve their returns.
All this has led to a great deal of tax competition, where countries have been forced to lower some of their corporate taxes to derisory levels in order not to lose their large investors.
In our opinion, this G7 measure will generate a balance at a competitive level so that new investors can participate equally in the different countries since the conditions they will have to pay for being in them will be the same.
Another great benefit of this measure will be the opening of new countries as attractive investment centers for multinational giants.
What Is the G7?
The G-7, originally the G-8, was established in 1975 as an informal forum bringing together the leaders of the world’s leading industrialized countries.
Over the years, the annual G-7 summits have become a platform for shaping the direction of multilateral discourse and devising policy responses to global challenges.
It complements the remit of the G-20, which is widely seen as the framework for permanent economic coordination on a global scale.
The summit brings together leaders from the European Union and the following countries:
- United Kingdom
- United States
What Else Did the G7 Say About the Future?
The G7 has highlighted that:
• We strongly support the efforts underway through the G20/OECD Inclusive Framework to address the tax challenges arising from globalization and the digitalization of the economy and to adopt a global minimum tax.
• We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises.
• We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies.
• We also commit to a global minimum tax of at least 15% on a country by country basis. We agree on the importance of progressing agreement in parallel on both Pillars and look forward to reaching an agreement at the July meeting of G20 Finance Ministers and Central Bank Governors.
G7 Reaffirms Support for Central Bank Digital Currencies (CBDCs)
“Innovation in digital money and payments has the potential to bring significant benefits but also raise public policy and regulatory issues” noted G7.
The group of finance ministers has also said that:
- G7 Central Banks have been exploring the opportunities, challenges as well as the monetary and financial stability implications of Central Bank Digital Currencies (CBDCs) and we commit to work together, as Finance Ministries and Central Banks, within our respective mandates, on their wider public policy implications.
- We note that any CBDCs, as a form of central bank money, could act as both a liquid, safe settlement asset and as an anchor for the payments system.
- Our objective is to ensure that CBDCs are grounded in long-standing public sector commitments to transparency, the rule of law and sound economic governance.
- CBDCs should be resilient and energy-efficient; support innovation, competition, inclusion, and could enhance cross-border payments; they should operate within appropriate privacy frameworks and minimise spillovers.
- We will work towards common principles and publish conclusions later in the year.
Given this new scenario, we can say that central banks’ digital currencies will soon be a reality, and that globalization at the tax level is here to stay.
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