Finance Ministers from the Group of Seven (G7) rich nations reached a landmark accord backing the creation of a global minimum corporate tax rate of at least 15%, an agreement that could then form the basis of a worldwide deal. Such a deal aims to end what U.S. Treasury Secretary Janet Yellen has called a “30-year race to the bottom on corporate tax rates” as countries compete to lure multinationals.
Major economies are aiming to discourage multinationals from shifting profits — and tax revenues — to low-tax countries regardless of where their sales are made. Increasingly, income from intangible sources such as drug patents, software, and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries. The global minimum tax rate would apply to overseas profits. Governments could still set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the minimum rate, eliminating the advantage of shifting profits.
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