Top finance officials agree on tax plan for international corporations

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The senior finance officials of the industrialized countries of the G7 agreed on Saturday on the idea of ​​a minimum taxation for international companies.

Observers say the deal signals upcoming changes to laws to tax cross-border businesses in the future. However, many details still need to be worked out before a wider group of nations, the G20, is likely to give the idea its backing. G20 officials are expected to meet next month.

Here are some of the details that have been agreed:

Which countries will be affected?

The G7 agreement to have a worldwide tax rate for international corporations of at least 15 percent now faces another test. An online meeting of the Organization for Economic Co-operation and Development is scheduled for June 30-July 1. The OECD is based in Paris.

At this meeting, a group of 139 countries will negotiate the idea with the aim of reaching agreement on additional details. Any agreement reached by these nations will be considered by a meeting of G20 finance ministers which will meet in July. Observers say that if G20 countries agree to the minimum tax, it would likely become a global rule.

How does the tax work?

The idea of ​​a global minimum tax is that it gives countries the ability to tax corporate profits even if they are declared in countries with low tax rates. G7 finance officials want the minimum tax to be used for individual countries. They do not seem to favor using an average rate for all the countries in which a company might operate.

Here is an example of how the tax could work. If a US company reports profits in the British Virgin Islands, which has no corporation tax, US tax authorities could still tax that company’s profits at a rate of 15%.

Details to be settled

G7 ministers are also discussing how to tax the biggest international companies like Apple and Google. These details are not final.

However, some industries, such as the mining industry, are susceptible to exempt because of the way they pay governments and make profits. In addition, countries like China want to protect low-tax special economic zones to support investment and development.

The OECD estimated in October that a global minimum tax would provide $100 billion in additional tax revenue to governments around the world each year. This represents approximately four percent of all income taxes collected worldwide in a year. Although this is a lot of money, it is a small sum compared to the trillions of dollars that major countries have spent due to the COVID-19 health crisis.

I am Mario Ritter, Jr.

Leigh Thomas reported this story for Reuters. Mario Ritter Jr. adapted it for VOA Learning English. Susan Shand was the editor.

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words in this story

minimum -not. the lowest possible or permitted number or amount

exempt –adj. not obligated to do something that others are obligated to do

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