Cryptocurrencies News; The newly proposed global tax rules are likely to greatly affect all international companies, with cryptocurrencies also being a target. At a meeting in London earlier this month, the finance ministers of the G7 unanimously agreed to create a global corporate tax rate framework.
The framework rests on “two principles”. The first principle ensures that companies achieving a 10% profit margin are subject to the tax rate. The second principle allows countries to demand a minimum tax rate of 15%. All told, the new rules will focus on where the profits are made, not where the company is located. The goal is to discourage companies from moving money around the world or providing services more cheaply from one country to another with a low tax rate.
Global corporate tax existed before
The concept of a global corporate tax rate is nothing new. While companies like Google, Amazon, Facebook, and Apple generate billions of dollars in revenue and pay very little taxes, regulators and governing bodies have tried to close the loopholes used by these large multinationals. The practice of making money in one country and then moving to another country to pay less taxes is mostly perfectly legal. However, in practice it can raise some moral questions.
This app has only really come into focus now, with the rise of international and digital businesses worldwide carrying more funds than ever before. Apple, for example, holds more cash reserves than the entire gross domestic product (GDP) of many nations. Still, it pays less in taxes than the average domestic company in most countries.
So how might these G7 decisions affect crypto companies?
Cryptocurrencies are truly international at their core. It also moves money around the world and targets an international audience. As a result, by its mere operation, it covers much of what is believed to be the new rules on the taxation of international companies. “International companies” literally means companies located in multiple locations or doing business in multiple countries.
What about cryptocurrencies?
The implementation of these new rules has not yet been approved, and many are still unsure of how exactly they will be implemented. The view is that internationally operating crypto companies must do one of two things: They will either be prepared to pay a corporate domestic rate of 15% worldwide, or they will truly internationalize their physical location.
Companies that have a “service company” based in the United States but whose “parent company” is headquartered overseas will also be subject to change.
On the other hand, while the G7 accounts for a large share of global GDP, there are still major players like India, China and Russia not included in these new rules. And whether they will even adopt them is hard to say. Similarly, countries like Singapore and Ukraine have excellent tax rules for companies that want to do business there with minimal assets.
The right to set your own tax rules is a great sovereign right. Countries will not want to give up on this quickly – especially those that rely heavily on corporate formations and corporate income.
In addition, there is no doubt that this entire process was directed by the United States. The US knows it is losing money by allowing companies to move funds from the US in a corporate setting. This is something that individuals and companies are desperate to stop, with tax laws more cumbersome than ever before. Countries like Russia will not want to appear as if they are being pushed around by the United States. Finally, it should always be remembered that tax evasion is illegal and should not be done. On the other hand, tax avoidance is just smart planning and it’s always worth the time and money to implement it properly.