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What is the global minimum corporate tax? | CNBC International - YouTube
Channel: CNBC International
[0]
Oh!
Oh no!
[1]
Sorry, butter fingers.
[2]
Make sure you turn the scales on.
[5]
Alright how many
have we got there? 2,000.
[6]
Yeah, we still have
[7]
a bit more to go.
[8]
Okay, a bit more to go.
Fill them up, fill them up.
[12]
So why are we
[13]
filling up jars, Tom?
[14]
We’re trying to explain why
a new global tax rate has
[18]
been agreed by some of the
world’s biggest economies.
[22]
In June 2021, the leaders
[24]
of the countries that make
[25]
up the Group of Seven,
otherwise known as the G-7,
[27]
endorsed a deal to
make multinational
[30]
companies pay
more tax.
[32]
Governments have been
trying to solve the
[34]
challenge of taxing
companies operating
[36]
across many countries for
a long time, and that
[38]
challenge has only
grown with the rise
[40]
of huge
tech corporations.
[42]
Now don’t go over
[43]
because then we’ll
[44]
have to start
taking them out.
[46]
Okay. Oh my god,
[49]
it’s so much pressure.
[52]
CNBC’s Silvia Amaro
covers European politics
[55]
and macroeconomics. If
she’s not in London,
[58]
you’re likely to
find her in Brussels.
[60]
So, there’s a reason why
[61]
we’ve done this. I promise.
[62]
We’ve filled up this
jar to 5,000 grams.
[64]
That’s because we are
working on a conversion
[66]
rate of 1 gram to
10 million dollars.
[69]
So, if we’ve got 5,000
grams that is how much?
[72]
50 billion.
[74]
Correct, well-done Silvia.
[75]
So, $50 billion dollars is
how much Amazon made in
[78]
revenue, in Europe,
last year, in 2020.
[82]
But despite the record sales,
Amazon’s European headquarters
[85]
in Luxembourg made a
$1.4 billion loss and
[89]
therefore paid no corporation
tax to the grand duchy. Other
[92]
big tech companies in
recent years have also
[94]
paid little
corporate tax.
[96]
Turnover for Facebook’s
[97]
U.K. outfit in 2019 was
[100]
$1.4 billion, and
yet they paid $516
[103]
million in
corporation tax.
[105]
In the 12 months ending
[106]
in June 2020, Google’s
[107]
turnover in the U.K. was
$2.37 billion and they paid
[112]
less than $708 million
in corporation tax.
[115]
So, now it’s your turn to
[116]
explain to us why that is
[119]
and how a new global tax
rate is going to change that.
[122]
Facebook, Apple, Amazon,
Netflix, Google and Microsoft
[130]
are some of the world’s
biggest tech companies.
[132]
This graph shows their total
revenue in the U.S. was more
[135]
than $4.6 trillion
between 2010 and 2019.
[139]
Their declared profits were
$1.1 trillion, and the tax
[143]
they paid was $180 billion
– which means they paid a
[147]
16.2% tax rate
during that time.
[150]
Given the U.S. had a 35%
federal corporate income
[153]
tax rate for most of that
decade, the gap in tax paid
[156]
with the expected headline
rates is $155.3 billion.
[159]
What’s going
[161]
on here, Silvia?
[162]
Why aren’t these companies
paying more in taxes?
[165]
Well, first all they are
[166]
paying the taxes they are
[167]
supposed to pay. The core
problem here is that there
[172]
are different tax rates across
the globe and when you are a
[176]
global company you have
the means to change your
[179]
headquarters in a way that you
pay less tax, and so it just
[183]
makes sense from an
accounting perspective.
[185]
So, this new tax deal aims
[187]
to change things in two ways.
[191]
First companies will have to
pay tax where they operate
[195]
and not just where they
have their headquarters.
[197]
So that is a big change
already, and then the second
[200]
thing here is that they want
to implement a corporate
[203]
minimum tax rate of 15%.
The idea there is to prevent
[209]
countries from
undercutting one another.
[211]
One of the ways organizations
can reduce their tax is
[214]
through corporate
profit shifting.
[216]
This is where businesses
set up their headquarters
[218]
and create local branches
in countries with low
[221]
corporate tax rates and
declare profits there.
[224]
For example, the U.K. has
a corporate tax rate of 19%
[227]
so a business could move its
headquarters from the U.K.
[230]
to the Isle of Man
where there is a 0%
[232]
corporate tax rate.
The company could then
[234]
book its profits in the
Isle of Man and pay no tax
[237]
– even if the profits mainly
come from sales made elsewhere.
[240]
To attract business and stay
competitive, one country after
[244]
another after another have
been making significant cuts
[246]
to their own rates,
including members of the G-7.
[249]
For too long there has been
[250]
a global race to the bottom
[252]
for corporate taxes,
where countries compete by
[256]
lowering their tax rates
instead of the wellbeing
[259]
of their citizens and
natural environments.
[263]
Corporate tax rates have
[264]
been in decline for decades.
[265]
In the last 40 years, the
world’s biggest economies
[268]
have made significant cuts.
The U.S. has reduced its
[271]
rates by more than 25%,
the U.K. in excess of 30%
[275]
and Germany by
a whopping 40%.
[278]
This has been a real
[279]
challenge, Tom.
[280]
On the one hand, as a
nation, you want to attract
[282]
these big companies and
essentially improve your
[285]
economic activity, but on
the other hand you’re
[288]
competing with a lot of
other countries who are
[291]
offering more attractive
tax incentives and in the
[294]
end these companies have
been really skilled at
[297]
manoeuvring these profits.
A lot of people have
[300]
not been happy
about that.
[302]
There are several popular
[303]
tax havens to shift profits
[305]
to, such as Malta,
the Cayman Islands
[307]
and of course
Ireland.
[309]
Apple, the world’s biggest
company, chose the country
[312]
to be its European
headquarters.
[314]
One report concluded
[315]
that it was the biggest
[316]
‘tax haven’ in the world,
with foreign multinationals
[318]
shifting $106 billion of
corporate profits to
[321]
Ireland in 2015 alone.
The headline tax rate
[324]
in Ireland is 12.5%, but
according to the report
[328]
the effective tax
rate is around 5%.
[330]
While the new tax deal
[331]
aims to prevent the
[332]
shifting of profits to
these low tax countries,
[335]
there are concerns that a
large loophole could be
[337]
exploited by companies
which run their business
[339]
at very low
profit margins.
[341]
So a lot of detail has yet
[343]
to be worked out, including
[344]
which companies will
actually be affected
[347]
by these new rules and
there is a concern out
[350]
there that Amazon might
not be impacted, simply
[353]
because the company has
registered less than 10%
[357]
profit which is needed
to be considered under
[360]
these new rules. However, the
U.S. Treasury secretary Janet
[364]
Yellen has said that Amazon
as well as Facebook will
[368]
qualify under
these new rules.
[371]
Amazon says it has low profit
[372]
margins because it reinvests
[373]
significant sums into
infrastructure and research,
[376]
adding that it complies with
all local tax laws, amounting
[379]
in hundreds of millions of
dollars in corporate tax paid
[382]
to European nations through
other parts of the business.
[385]
Part of this G-7 deal seems
[387]
to be to prevent another
[390]
trade war, a trade war over
digital taxes. Explain that.
[393]
Right, this is a very
[394]
interesting one because
[396]
the Communique that the
finance ministers agreed
[398]
to does say that ultimately
the idea is to remove all
[402]
digital services
taxes that are in
[405]
place to avoid
double taxation.
[407]
However, we’re not sure how
this is going to work because
[410]
both Canada and the EU have
said that they want,
[414]
nonetheless, to have
their own digital taxes.
[417]
This could be a very tricky
[418]
issue from a political
[419]
perspective because we know
that from the previous
[423]
administration that the
U.S. has issues with the
[426]
idea of a digital tax,
in the sense that most
[429]
of these digital companies
are American and they don’t
[432]
want these firms to be
disproportionately targeted.
[436]
In fact, under the presidency
of Joe Biden, that policy
[439]
has not changed, even though
we have to say that the tone
[442]
there is very
different from
[444]
the previous
administration.
[446]
Is there any
[447]
opposition to the deal?
[448]
There’s a lot of opposition
to the deal in the sense that
[451]
some people say
that 15% is not enough.
[454]
Others criticise the deal
because it will only benefit
[458]
rich countries and not
low-income nations and
[462]
ultimately there’s also
a group of countries out
[464]
there who don’t like the
idea that it’s these seven
[468]
countries that came up
with this agreement.
[470]
They don’t want to be
told what to do based
[472]
on a small number
of nations.
[474]
To increase pressure on
low tax countries, many
[476]
believe there needs to
be a wider agreement
[479]
amongst the G-20.
Collectively, the G-20
[482]
economies account for
around 80 percent of
[484]
the world’s gross
domestic product
[486]
and 75 percent
of global trade.
[488]
The Organisation for
Economic Cooperation and
[491]
Development estimated that
a deal with wide-reaching
[493]
consensus could increase
global corporate income tax
[496]
revenues by about 50 to
80 billion dollars per year.
[500]
The pandemic has left a
[501]
lot of these countries
[503]
that we’re talking about in
a dire economic situation.
[506]
Has that been one of
the driving forces in
[509]
getting this
deal agreed?
[511]
Absolutely, well, first
[512]
of all it’s important to
[513]
point out that the deal
is not totally completed.
[516]
We still need to see an
agreement at the G-20 and
[519]
at the OECD, but
definitely the
[521]
pandemic played
a huge role here.
[524]
First because the economic
shock was very severe across
[527]
the board and these big
corporates were the ones
[530]
that profited the most from
the pandemic in the sense
[533]
that most of us were at home,
working from home and needed
[536]
these technology companies
to work for us in a way.
[539]
And then the other thing that
[540]
I would point out is the U.S.
[543]
perspective is very interesting
here as well because there was
[546]
a lot of social unrest in the
United States, prior to the
[549]
election of Joe Biden.
So when he arrived at
[552]
the White House, he knew
he had to do something
[554]
about inequality and to
address those social
[557]
concerns and what would be
the best way to do that
[560]
than taxing
big corporates.
[562]
It’s also important to
bear in mind that the
[564]
Senate needs to approve
the deal in its current
[567]
form and that could
be a tough battle
[569]
for Joe Biden
and his team.
[571]
Ultimately though we have
[573]
the seven most advanced
[575]
economies coming up with
an agreement on global
[578]
corporate tax and that in
itself is significant
[581]
because it does change the
rhetoric and it does propel
[585]
the debate among international
institutions on how to
[589]
move forward in
terms of taxation.
[591]
Hold that, don’t drop it.
[594]
Ok, heavy.
[595]
Now take a look.
Yeah.
[598]
How many coins do you
[599]
think is in the jar
[602]
and if you guess
close to the right
[607]
answer you
can keep it.
[609]
I’m going to
[611]
say, 5000?
[612]
Do you want
another guess?
[615]
10,000?
[616]
No, you’re getting colder.
[621]
1,250.
Only 1,250?
[624]
Yeah, you can
[626]
give it back to me.
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