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REGULATION: G20 looks to rewrite the global tax rules.


Added on 07/06/2019

As published on nhk.or.jp, Friday 7th June, 2019.

 

Finance ministers from 20 major economies will be meeting in Fukuoka, Japan this weekend to discuss global economic challenges. One of the main topics will be how to prevent tax evasion in an era where economies are going digital. And leaders are ready to give a push on the back to set international rules specifying a minimum tax rate: a big leap forward in changing the global tax system, and possibly putting an end to a "race to the bottom".

They call it the "race to the bottom". Governments slash tax rates and strip away regulations in a bid to attract businesses. But it's one reason it's so easy for multinational corporations to evade taxes completely.

The G20 and the OECD have been working hand in hand in trying to change that. They want to rewrite the international tax rules and close the loopholes, and the idea they have come up with is a bold one. They are proposing a worldwide minimum tax rate.

Firms with an international footprint would be asked to pay a minimum level of tax, no matter where they place their subsidiaries. The country that houses the headquarters would be allowed to tax some or all of the income shifted to subsidiaries in a country that undercuts the global minimum. So shifting profits across borders would no longer pay off.

The G20 and the OECD is trying to stop multilateral corporations, especially IT titans, from evading tax using tax havens.

The plan is expected to get the green light at the G20 meeting. But it won't be easy to implement. Taxation is a sovereign right, and many countries have been racing to the bottom for years.

The idea is likely to face some pushback from countries with no or low corporate tax rates.

The OECD is working on the details of how it could be implemented. The goal is to figure out specific taxation methods and reach an agreement by the end of next year.