Economic Watch: G20 approves international corporate taxation, raising concerns of developing countries
Rome – Finance ministers from the Group of 20 (G20) major economies endorsed on Sunday an agreement to revamp international corporate taxation, raising concerns of developing countries.
The approval by G20 world leaders came after the Paris-based Organization for Economic Cooperation and Development (OECD) announced earlier in October that a major reform of the international tax system had been agreed on by 136 countries and jurisdictions, representing more than 90 percent of global gross domestic product (GDP).
The agreement to impose a minimum corporate tax rate will subject multinational companies to a minimum 15-percent tax rate from 2023. The revamped tax rules will apply to multinational companies with revenue above 750 million euros (about 866.73 million US dollars).
Under the agreement, countries where multinational companies are headquartered will be able to collect the tax deficit if the companies pay a tax rate lower than 15 percent in its overseas market.
The global corporate minimum tax rate will benefit developed countries, where most of the largest multinational companies are headquartered, more than developing countries, according to a report by the EU Tax Observatory, an independent research laboratory hosted at the Paris School of Economics.
Under the new tax scheme, the EU will increase its corporate income tax revenue by more than 80 billion euros (92. 45 billion dollars) a year, while the United States will gain 57 billion euros (about 65.87 billion dollars) a year, said the report released in October.
With the bulk of the benefits going to developed countries, some developing countries that are relatively more dependent on corporate taxes have voiced their concern that the new minimum tax rate might stifle investments in their countries.
In addition, technical specifics such as implementation and dispute resolution will also need to be sorted out.
According to Antonio Tricarico, a programs manager with Re:Common, a think tank, said that “the main purpose of the G20 when it was created was to focus on economic and finance issues,” adding that “these issues even more than health or political issues that are addressed are at the heart of the G20 mandate.”
In remarks at the opening of the G20 summit on Saturday, Italian Prime Minister Mario Draghi, a former governor of the European Central Bank, said that it is “a historic agreement for a fairer and more effective international tax system.”
According to investment bank Hildebrandt and Ferrar economist, Javier Noriega, the plan is important because it will help level the playing field between countries in terms of tax revenue from multinationals.