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Governments are teaming up to raise corporate tax

A lot of people are angry that big businesses get away with not paying much tax.

Corporate tax is the money businesses pay to governments. It is charged as a share of their profits, and different countries have different rates of corporation tax. At the higher end, Malta takes 35 percent of a company's profits, whereas the United Arab Emirates is one of several countries which take zero. 

There are advantages and disadvantages to both approaches. Higher corporate tax rates means more revenue for governments to spend on everything from healthcare to nuclear weapons. That's good for citizens who want those things. Government spending can be good for businesses too, as it is often invested in things like education or transport infrastructure which businesses need to grow and succeed.

However, high tax rates have been linked to discouraging businesses from setting up shop or trying to grow bigger. Not everyone wants to pour blood, sweat and tears into making money only to have to hand a load of it away. That's why some countries think having a low tax rates will make them have more business activity overall. Some argue it will even lead to more tax revenue overall, because there will be more companies to collect from and they'll book bigger profits. Even if that’s not the case, businesses bring other benefits that governments and societies value: jobs, new products, specialist expertise, and so on. 

In theory, it seems fair enough that every country should be able to decide the rate of corporate tax that best suits their interests. But globalisation has made everything a bit more complicated. That's because offering lower tax rates than other countries can put you at a competitive advantage when it comes to enticing multinationals to set up camp in your country. (Often, businesses only pay corporation tax in their HQ country even if they sell some - or even most - of their products elsewhere.)

This tool can be valuable, particularly for smaller and poorer countries who may not be able to offer some of the draws - from cultural heft to innovation hubs to top-of-the-line infrastructure - of their bigger neighbours. But it can lead to a 'race to the bottom' as countries keep slashing corporation tax to outcompete each other. 

Many people feel that big, rich multinational companies are using this system to wriggle out of paying their dues to society. Apple, Starbucks and Microsoft are just a few examples of super-famous businesses that have been criticised for paying too little tax. So at the recent G7 convention (basically a club for powerful nations) governments hashed out a plan to set a new minimum global tax rate of 15 percent

If this gets implemented, it would mean no more tax havens and a few extra billions for governments to spend. But plenty of people don’t think the plan goes far enough. The global tax revenue losses from firms playing the system is estimated to be about $240 billion. The proposed tax reforms are expected to bring in maybe $50-$80 billion. Several organisations have called for the tax threshold to be raised to 25 percent. Others have expressed concern that the overhaul will benefit wealthier countries more than poorer ones, which seems unfair. 

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