2021 is shaping up to be one of the most important years in a generation when it comes to tax reforms. Not only have we seen worldwide implementation of e-invoicing and the unveiling of the EU VAT Ecommerce Package, last week’s G7 summit saw major reforms to the way Multinational corporations will have to pay tax. The reforms are intended to force these corporations to pay more tax and to crackdown on tax avoidance.
What Does The Reform Entail?
As stated in the introduction, the driving force behind these reforms is to ensure that multinational corporations pay tax to the countries where they do business. It is well know that many big multinationals will set up branches in ‘tax havens’, countries that have a low corporation tax, and then declare their profits in that country. Whilst this is entirely legal, the major economies have found this frustrating since it is in their countries where most of the sale and profits are being made.
In order to do this, the reforms are separated into two ‘pillars’.
Pillar One: Making Corporations Pay Tax Where They Operate
The first pillar of the G7 tax reforms is concerned with making multinational corporations pay taxes to the countries within which they operate. This means these countries will now need to pay tax to the country in which their consumer resides rather than the country that they are situated in.
This will undoubtedly raise more funds for the major economies, however there is a catch. This new rule only applies to companies with a profit margin of at least 10%. These companies would then pay a tax of 20% on any profits over this amount. This would rule out Amazon, for example, who have a profit margin of roughly 6%.
Pillar Two: Having A Worldwide Minimum Corporate Tax Of 15%
The other side of the G7 tax reforms is the implementation of an international minimum rate of 15% corporation tax. This would hopefully stop countries attempting to undercut each other with lower tax rates.
It is speculated that this will mean the end of digital taxes that have been implemented by the UK and some EU countries as America want to make sure that their multinational tech companies are not being targeted.
What Will The G7 Tax Reforms Mean For The Average Seller?
As it stands, not much. Even those on Amazon, are unlikely to see any changes to the service for a while since these reforms are still in their infancy. There is still a long way to go in terms of actually agreeing to more concrete rules of the reforms – as it stands, there is just an agreement in principle in place.
The G7 nations still have the task of convincing other major economies such as China to follow suit. The G7 tax reforms will need to be as widely implemented as possible to have any real affect. However, sellers should definitely keep an eye on developments. Speakers after the agreement have been keen to stress that the proposed 15% is only a minimum, and many will push for a higher rate. The fact that Amazon fall outside of the first pillar may mean that the UK and EU push for a wider scope for pillar one. It is also not clear how countries such as Ireland, who have a current relatively low corporation rate of 12.5%, will react to the news.
Hopefully this information has been helpful to you. Should you need more help, we would like to take this opportunity to remind you that our long history of working with Amazon and eBay sellers means we can offer you expert advice. Please do not hesitate to give us a call on or send an e-mail to enquiries@jpaccountant.com or a call on 07734182821 should you require any assistance.
