It’s noteworthy that the G7 came to a landmark international tax agreement earlier this month. It’s the first since the turn of the century—the previous century, that is. These proposals will next go to the G20 finance ministers meetings in July and then on to the entire OECD.
The most prominent policy in the agreement is the 15% floor on corporate profits. The policy attempts to reduce tax haven competition that hurts all parties by creating an international “race to the bottom” in corporate tax rates.
Business valuers won’t simply be able to plug in a new effective tax rate standard when valuing small- and medium-sized enterprises. Among the valuation variables still in play are:
- The UK’s digital tax regime is now in conflict with this new set of international rules, creating potential double taxation for the large tech multinationals;
- Most of the EU believe that the 15% rate is too low;
- China and India are not currently involved in these proposals;
- Ireland still operates under their current corporate tax rate of 12.5%;
- Private capital can still move more or less freely to tax havens, so most businesses that require business valuation services won’t change their policies, even if Google and Apple need to make adjustments; and
- As with many international agreements, there’s a reasonable chance the US will not accept nor enact the provisions—particularly since there’s a US perception that a minimum corporate tax unfairly targets a handful of US multinationals.
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