The political economy of the G7 Tax Agreement

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The reallocation of taxing rights and a new global minimum tax are major inflection points in tax reforms.

A joint statement issued by finance ministers and central bank governors of the Group of Seven (G7) countries after their meeting in London in the first week of June took most people by surprise. This is mainly due to their strong support for the efforts of the Group of Twenty (G20) countries and the Organization for Economic Co-operation and Development (OECD). The efforts of the G20-OECD focus on the dual objective of meeting the fiscal challenges associated with globalization and the digitization of the economy, and the adoption of a global minimum tax. Concretely, this would mean a reallocation of taxing rights on a part of the excess or residual profits of the largest multinational companies in proportion to the distribution of their market activity between different tax jurisdictions as well as an initial overall minimum tax rate of at least 15% on them.

While the first measure will help countries potentially mop up between $ 100 billion and $ 240 billion in lost annual revenue due to multinational corporations’ strategic tax planning, the second will stop competition between countries to lower corporate tax rates. and will finally put an end to this race. down. All in all, these two measures are quite radical steps that would help, as the Minister of Finance pointed out, to build more stable tax systems to mobilize sufficient income to invest in essential public goods and to cope with any crisis, ensuring a more equitable sharing of the burden of financing governments by citizens and businesses.

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