In what has been described as “an historic day for economic diplomacy”, 130 different countries have come together to sign a new agreement that will impose a minimum corporate tax rate of 15%.
It’s a deal that negotiators from countries including the US, France and China, as well as the UK, have spent years putting together. Although a small number of countries have chosen not to back the deal at this stage, it has the support of the overwhelming majority – including all G20 countries.
Small businesses needn’t worry about how this will impact their profits, as the decision is very much focussed on securing higher levels of tax from global giants such as Amazon and Google. As such, the deal will involve the creation of a global tax specifically effecting 100 of the world’s biggest companies, and ensure a minimum international corporate tax rate.
Currently, some companies try to get around their tax obligations by storing their money in countries where tax rates are far lower, or in offshore tax havens. This move indicates a recognition that the only way to target these dodgy practices will be for many different countries to come together and ensure equal treatment regardless of where a company chooses to do business.
And, although a small number of companies are yet to sign up, several of those that are currently regarded as tax havens for wealthy businesses – such as Gibraltar and the Cayman Islands – did put their names to the deal.
Speaking about the agreement, the UK’s chancellor of the exchequer Rishi Sunak said: “The UK has been pushing for reforms to make the global tax system fairer for years – and at last month’s G7 in London we achieved a historic agreement that will see the largest multinational tech giants pay the right tax in the right countries.
“The fact that 130 countries across the world, including all of the G20, are now on board, marks a further step in our mission to reform global tax.”
There’s still some way to go before we start to reap the benefits from higher taxation, though. The next step will be for the individual countries involved to go away and work out a way to pass the changes into law. There will be a lot of complex conversations to come, as governments will want to negotiate the details – such as potential exemptions for certain key industries.
However even if this is just the start of a longer conversation, it’s a very good sign that governments across the world are starting to look at collaborative options for ensuring that our wealthiest businesses pay their fair share. The countries that have already signed up represent 90% of the global economy, so we shouldn’t underestimate the impact that they could have – or their ability to put pressure on those that have been holding out.
Hopefully, it represents a move towards a more balanced economy, where ultra-wealthy companies are no longer able to hoard money that should be contributing to growing our economies.