Braking Down The News

G-7 Tax Plan: What We Know About the Global Corporate Tax Deal

Rewriting the rules on how major companies are taxed could have broad repercussions—depending on how the details play out

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Seven wealthy countries have announced a plan to impose a minimum levy on multinational corporations and rewrite the rules governing how countries tax them, but policy makers around the world will need to make some tough choices before anything actually changes.

The Group of Seven nations agreed to a broad framework for changing the global corporate-tax system, rather than a detailed plan. It pairs two related but distinct “pillars.”

There are high political and bureaucratic hurdles to adoption of the proposal. Here is a look at some of the factors that will shape any global corporate tax regime.

1. One major part of the proposal would upend a longstanding principle of international taxation.

That principle said corporate profits should be taxed where value is generated, which traditionally was where businesses had a physical presence. The rule was easier to follow when profit flowed from factory floors instead of patents and other highly mobile intellectual property.

Now the G-7, which comprises of Canada, France, Germany, Italy, Japan, the U.K. and the U.S., is proposing that some profit from some of the biggest companies should be reallocated to countries where their products and services are consumed. Those countries can then tax the reallocated portion of the profit.

 

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