G7 Tax Deal

The deal, announced with much fanfare, is heralded by its proponents as a key step in the battle against tax avoidance by seeking to procure that companies pay more tax where they do business (rather than simply where their profits are declared) in tandem with a global minimum tax rate of at least 15% so as to avoid a so called 'race to the bottom'.

Apart from ideological and practical arguments against the bridling of tax competition (including sanctity of tax sovereignty as well as the fact that increased tax burdens are typically simply passed on to the ordinary person in the street), there are also questions over whether the new rules will achieve their intended results, as well whether they are fundamentally too complex such as may actually allow for avoidance.  

The first limb of the deal is described as applicable to companies with at least 10% profits, with their next 20% of profits being reallocated and taxed in the countries where they operate, with no immediate guidance regarding how that may be decided, but with seemingly significant room for creativity in margins, allocation and what services/functions comprise operations - the warm reception of some of the large tech players to the announcements at least suggest their general satisfaction with the proposals.  

The second (15% minimum tax) piece falls far below what most of the more affluent and established economies levy in any event. 

With the next step being to try and achieve the buy-in of the G20 nations and beyond, and with advocates for more extensive and holistic tax reform suggesting the announced deal does not go far enough, whilst the likes of Ireland (whose finance minister accepts change is coming but shall continue to argue for legitimate tax competition) advocating that the concerns of smaller nations also require to be heeded (with some criticism being that this deal is devised to benefit the richer, larger G7 nations themselves), it is likely that developments in global tax reform will continue to evolve substantially. 

Yesterday's announcements may be the mere 'starting pistol' in that race.