Wouldn’t it be great if all the companies in the world had to pay at least one tax? U.S. Treasury Secretary Janet Yellen believed the idea was practical and suggested it at the International Monetary Fund (IMF) Spring Conference. With former US President Donald Trump, such a tax reform was unthinkable, and his successor, Joe Biden, now seems likely to do so in the near future.
Details about the implementation of the minimum tax are still open
Yellen did not want to commit to the minimum rate amount and how the tax would be levied. It has to be decided by the global community of states in the Group of G20 countries and the 140 members of the OECD, an industrialized body. The former head of the US Federal Reserve sees this as a contribution to global tax justice if international corporations pay the minimum corporate income tax rate in all cases.
Experts expect the tax to be as low as 10 to 15 percent, which can be added to the second regional tax in individual countries. The new U.S. administration is now thinking of a lower limit of 21 percent.
Relatively high corporate taxes in Germany
Yellen’s move was welcomed by federal finance minister Olaf Scholes (SPD), who expects a quick deal to bring about global tax reform by summer. Most importantly, the federal government and other EU countries will impose a new rupee tax on digital services from Google, Amazon, Facebook or Apple. For the first time, the new US government is open to this.
It is not a fact that big internet companies pay practically no taxes in Germany. Competition between locations that advertise that countries like Ireland are not taxing will also fail. Considered a high-tax country, Germany is not under much pressure from companies to relocate their products abroad or migrate en masse.
Fierce competition for locations to find companies
In Germany, the total weight of many companies is at least 30 percent. The corporate income tax that ensures the financial viability of many municipalities is only 15 per cent and the solidarity surcharge.
The main question is what will happen in advance in Germany in favor of global taxation, which is happening in other countries as well. This is especially true for export companies or international corporations operating from Germany.
Low taxes hurt exporters like Germany
There are still many unanswered questions about the imposition of a minimum tax on international companies, and the G20 tax base, one of the 20 industrial and developing countries proposed by the US Treasury Secretary, is very important. First and foremost, you need to clarify what taxes are being levied.
Tax evasion is another matter. International companies and corporations in particular can easily reduce their tax burden by reporting low profits or shifting losses back and forth between different locations. This leads to costs such as domestic loans from subsidiaries in parent companies. International financial investors often finance such loans to acquire their company.
Tax losses are possible for federal, state, and local authorities
On the other hand, with the new minimum tax, tariffs on tax offices will increase further in the countries where companies do their business – that is, in the markets where they sell their goods and services. It would be bad for countries like Germany to export.
German carmakers will have to pay the lowest taxes, mainly in the USA and China, where they sell more vehicles, not in company-headquartered Germany. The German finance minister will lose more than he gained from Amazon and Google with export companies in the automotive or mechanical engineering industries.
Extra income for US President Biden’s economic stimulus plan
Tax revenue will increase for imports from countries like the USA where the economy lives heavily on consumption. From the long-running trade deficit that is weakening the U.S. economy, the government in Washington can achieve a new advantage with the minimum tax.
Billions of dollars in investment plans for US President Joe Biden’s U.S. infrastructure could be funded as part of the new tax.
More reasonable taxes for poorer countries
This applies to poor countries and developing economies where production is not well developed. Such countries can often supply only raw materials and agricultural products. Finished goods arrive there from industrialized countries, and companies gain financial added value. Profits and taxes are mainly in rich producing countries, not buying countries. Only consumption taxes such as sales tax or value added tax are possible there.
Many people think this is unfair because the weak position of poor countries also reinforces the fact that corporate taxes are low. In this regard, the Global Minimum Tax is intended to ensure better distribution around the world.
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