Questions and Solutions: What does the G7 tax treaty imply for multinational firms?

The G7 countries have reached a groundbreaking agreement on corporate tax reform and agreed on a minimum tax rate for multinational companies.

The deal between the US, Japan, Germany, France, the UK, Italy and Canada aims to prevent companies from shifting profits to low-tax countries and ensure that the largest multinationals pay more taxes where they operate.

But how high the tax revenues are and which companies are affected remains unclear.

FT's business editor Chris Giles and Emma Agyemang, our global tax correspondent, answered questions all day Thursday June 10th about what the deal means, which companies are likely to be affected, and how it could be successful.

Here are the highlights:

FT commentator MrMarket101: Isn't that an impossible game to be successful at? When it comes to hundreds of billions of missing taxes, there are also hundreds of millions in tax consultancy costs on the table. And when the incentives are this high, you will have every large four-, medium-sized, and boutique corporate tax advisory team in the world thinking about increasingly complex webs of corporate structures to overcome the new tax system.

Chris Giles, FT: That is precisely why it is difficult. But not impossible. If this were not possible, no country could levy corporation tax because the same incentives apply.

For tax collectors, the beauty of the second pillar of the OECD proposals – the global minimum that the US government Biden advocates – it can be done unilaterally. The US is big enough to tax its companies worldwide and makes it very difficult for them to use tax incentives to move their headquarters elsewhere.

Companies also want to be compliant. If the global rules change, the big four will want to help companies stick to compliance and get paid for doing so too.

FT Commenter Fons: Besides the media statement by the G7 finance ministers, is there a more detailed document on the proposed global tax plan?

Emma Agyemang, FT: We are still in the dark on many key issues. For example, we don't know exactly which 100 companies will be taxable in the countries in which they operate – not just where they are based under the first pillar. With the second pillar, the worldwide minimum tax rate of 15 percent, we do not know which tax base the 15 percent rate is applied to.

The reason for the vagueness is that there are still many areas and issues that the negotiators have not yet decided. Remember that the G7 is only a fraction of the countries involved in the discussions. The full negotiations are being negotiated by 139 countries at the OECD in Paris.

In short, the G7's lack of details over the weekend suggests this is just the beginning of the journey to a full settlement.

FT Commenter Maheshp: My question is: what taxes would companies like Facebook, Google and Twitter pay for a country like India under this tax law?

Chris Giles, FT: The truth is that the amount of reallocated taxes would not be very high. This is a first step in moving international corporate taxation away from being physically present in a country, so the principle is more important than the exact tax amounts.

Globally, last October, the OECD estimated that Pillar 1 would generate between 5 and 12 billion US dollars annually in additional income. India's share of the world economy is 3.2 percent at market exchange rates, which translates into revenue of $ 100 million to $ 400 million. And the money would come not just from remote Facebook, Google, and tech companies, but from all of the largest multinational corporations, so the tech share would be a fraction of that.

FT commentator Connor O’Leary: I read that Amazon's profit margin is around 7.5 percent. Does this mean that the company will not be affected by the new regulation, according to which 20 percent of the profits of companies with less than 10 percent profit margin must be declared in the country of sale?

Emma Agyemang, FT: The Amazon marketplace actually has a profit margin that is below the 10 percent threshold that G7 companies need to be included in the new tax treaty. But perhaps in anticipation of public outrage if Amazon were not included, the G7 decided to bring another part of Amazon's business into scope: Amazon Web Services. It has a profit margin of 30 percent, comfortably reaching the threshold.

Would you like to read more questions and answers about the G7 tax treaty? The conversation took place in the comments section below, so read on.

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