The G7 Has a Global Tax Plan. Can It Implement It?

Whatever plan is decided upon among world finance ministers will still have to be approved by the legislatures of all of those countries. 

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After years of trying to agree on how to implement a global minimum tax rate so as to rid the world of tax havens, G7 finance ministers agreed on a plan that aims to do just that earlier this month. Those finance ministers will now take the plan to the G20 meeting scheduled for Rome in July with the ultimate goal of getting all 38 members of the Organization for Economic Co-operation and Development (OECD) on board. 

OECD Secretary-General Mathias Cormann praised the plan in a statement the day it was announced, saying, “Today’s consensus among the G7 Finance Ministers, including on a minimum level of global taxation, is a landmark step toward the global consensus necessary to reform the international tax system.”

The G7 plan lays the groundwork for continued talks between countries involved in the OECD/G20 Inclusive Framework, a coalition of more than 135 countries, Thornton Matheson, a senior fellow at the Urban-Brookings Tax Policy Center, told The Dispatch. The goal of the Inclusive Framework is to cut back on the amount of tax avoidance in the world. Established in 2016, the Inclusive Framework has offered rules and regulations for countries to implement in order to cut back on multinational companies avoiding taxes. 

One goal of a global minimum tax is to reduce “base erosion and profit sharing,” or BEPS as it’s often referred to. The OECD website describes BEPS as “tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.”

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  1. Avatar photo
    Ben Connelly

    Reading this, I had some of the same thoughts as other people in the comments: this sounds exactly like businesses in an industry getting together to price fix. Amazing how something stops being criminal when governments do it.

    I was surprised and heartened by the Irish PM’s comments. He’s right. Maybe the rest of the OECD should follow their model.

    That bit about China having an exception is just cringeworthy. How can self-respecting international leaders honestly not see the idiocy of that? It’s like a bunch of companies saying, “let’s all get together and set prices - and everyone has to do it or it’s going to fail for all of us because normally raising prices/taxes is against our interest - oh by the way, the worst actor in our industry, the guy who cheats and screws over all the rest of us, every time, gets an exception.” Wonder how that will work out for them. Maybe this time China will play nice.

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  2. Nicco

    Too bad OECD isn’t subject to American antitrust law. Justice Kavanaugh recently had some scathing words about the NCAA’s price-fixing with respect to player compensation.
    If a bunch of wealthy, multinational corporations got together to agree on a global minimum price for their products/services, you can bet every single G20 government would be blowing steam out of their ears.

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  3. Avatar photo
    Earl King

    Paychecks and profits certainly can be taxed...but I believe any corporation should pay as little tax as possible.
    First they can hold on a certain portion for emergencies or for future growth or leverage opportunities. Less in favor of stock buy backs but it is in the stockholders interest. Finally dividends can be taxed...but not twice. For me dividend taxes should be low as the money has already been taxed as profits. This whole "fair share" nonsense is ludicrous.

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    1. Daniel Rabiner

      Dividends are just paychecks to investors. Don't see why it should get preferential treatment.

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        Earl King

        Because of the use of capitol formation money. The risk of investing. You want to encourage investing.

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        1. Daniel Rabiner

          that's a different argument than "double taxation". If you want to have a tax system that gives preference to capitol over labor just say so.

          Also when an employee takes a job they're taking a risk that the company will be run competently and profitably. Otherwise they're not going to make as much in the end either.

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            Earl King

            This is why I am for compensating employees with stock....Not as a payroll but in addition to payroll. Double taxation is on dividends only. this is why if you're going to keep doing that than the rate on Dividend should be lower as they have already been taxed. ...and I do favor capitol over labor. Let me put it this way. An old saying but it's true. The business of America is business. Specifically small business. However big business provides very good jobs and I am for a good retirement. Home Depot gave their employees stock during their growth days and many retired. I would find a way to encourage that for Corporations. Building wealth is a good thing for people. Black White Brown...old young....it all good.

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  4. Avatar photo
    Butch Earl

    "There is no dignity quite so impressive, and no one independence quite so important, as living within your means." ~ Calvin Coolidge
    Interesting and depressing how slowing the growth of government is not even mentioned at these supposed economic summits.

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  5. Avatar photo
    George.Skinner

    I'm sure something like this could be implemented, but it effectively becomes just another tariff or trade barrier. This isn't really a sensible economic policy anyway - governments can tax the same sources of income via other means such as value added taxes, income tax on employees and investors, and capital gains tax on stock sales. The main value is that taxing corporations is a politically advantageous policy because voters think that companies are just sitting on huge piles of money, and that they can get somebody else to pay for stuff they want governments to do. That's actually a great argument politically, but it just feels wrong.

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    1. JohnO

      Right, the rational policy is no corporate taxes: just tax the income or value at the point of the (actual, human) person receiving it. But the ignorance of the public on this would be extremely hard to penetrate, and not in the interest of politicians to spend their bandwidth on that kind of education, those who understand it themselves. So harmonizing corporate tax rates among willing countries isn't a completely terrible idea in the real world. But it won't make a significant difference in the big picture. If it succeeds it will be at a level below what the Democrats want in the US, even below what the GOP was able to achieve.

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  6. Daniel Rabiner

    Just charge taxes based on where sales occur and not where a company is headquartered.

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      rlritt

      I think that's what they are planning to do.

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    Jason Gibson

    Hopefully this goes nowhere

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  8. Patrick E

    China wanting to be the exception to the rule is all I need to hear to know this plan is a dud that should never be passed.

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  9. Avatar photo
    Nick H

    “Today’s consensus... is a landmark step toward the global consensus necessary to reform the international tax system.”
    Except there is no "international tax system" because there is (thank goodness) no international government that is levying taxes. This is a cartel of the high-tax countries trying to eliminate competition using international regulation. It is an affront to the ideals of a free market and erodes the sovereignty of every nation that participates.

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