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The New G-7 Tax Proposal Is An All-Around Bad Deal For America

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The Group of Seven (G7) nations, including the United States and six other wealthy countries, recently announced they had reached an agreement to impose a minimum global corporate tax rate on multinational companies and would be amending long-held international tax principles and rules. Treasury Secretary Janet Yellen hailed the announcement as a victory that would end the global “race to the bottom” on taxation. But in truth, what the G-7 proposed is a bad deal for America’s sovereignty, American businesses, and taxpayers.

The agreement has two main components. The first is to implement a new tax rule. Currently, corporations pay taxes over profits earned to nations where they have a physical presence. The G-7 agreement proposes that countries would have the right to tax 20 percent of profits above a margin of 10 percent where the company’s products or services are consumed.

For example, Company X is located in County A but sold its service to people in Country B. Company X made a profit of $15, representing a 15 percent profit margin. Under the current global tax system, Company X has to pay tax on the $15 profit to Country A only.  According to the new G-7 agreement, however, Country B will also collect 20 percent tax on the profit above a margin of 10 percent, which in this case is $5.

While clearly aiming at American tech giants, this G-7 proposal is, in fact, a global digital service tax in disguise. Out of concerns for “fairness” and “justice,” in recent years some European governments have called for imposing a special digital tax on large U.S. tech companies. Nevertheless, with rare bipartisan support, the Trump administration had pushed back on such attempts, arguing the digital tax amounts to discrimination against the American companies in question.

Surrendering to European Demands

Last July, France demanded that tech companies with revenues of more than 25 million Euros in France and 750 million Euros worldwide to pay a 3 percent digital service tax on digital income generated by French users. The Trump administration retaliated by imposing levies on French imports to the United States, but

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