The taxation of multinationals is the subject of an ambitious reform at the G7 Finance meeting.
The taxation of multinationals, whose contribution to national budgets has continued to decline for 40 years to the benefit of tax havens, is the subject of an ambitious reform at the G7 Finance meeting.
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These are some elements to understand the project that should put an end to the so-called fiscal optimization of the giants of the world economy.
Why?
In 2017, the Organization for Economic Cooperation and Development (OECD) was mandated by the G20 to combat “base erosion and profit shifting” (BEPS).
These are optimization strategies that allow large companies to avoid paying taxes.
The negotiations were reactivated thanks to a proposal by the Biden administration to set a minimum rate of 15%. And also because of the covid-19 pandemic, because the States are looking for new income after having deployed important recovery plans.
How?
The aim is to prevent companies from hiding in countries that are especially “fiscally friendly” but disconnected from their real activity.
The reform has two “pillars”: “pillar 1” aims to distribute the “right to tax” equally among the countries for the profits of multinationals, since a company like the oil company BP, for example, is present in 85 countries.
The States will have to agree on a level of “excess profits” that will be redistributed according to the volume of business carried out in each country.
Pillar 2 is to introduce a global minimum tax to ensure that a multinational company does not pay less regardless of where it is based.
What rate?
The United States had set the bar relatively high with a proposed rate of 21%, before putting a further consensus figure of “at least 15%” on the table.
But economists Gabriel Zucman and Thomas Piketty call it “ridiculously low” as the average corporate tax rate worldwide is 22%, up from 50% in 1985.
According to OECD data, the rate below 15% is applied in tax havens with a zero rate – such as Jersey, Guernsey, the Bahamas, Bermuda, the Cayman Islands, but also the United Arab Emirates and Bahrain – and in European countries such as Ireland (12.5%), Hungary (9%) and Bulgaria (10%).
In some countries, the official rate can be high, such as Luxembourg (25%) or Malta (35%), but there are multiple exemptions that reduce it considerably.
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The tax will only apply to large companies with multiple subsidiaries and branches around the world, with gigantic business volumes and who have the means to reduce their tax burden.
Initially, pillar 1 of the reform was aimed at digital companies, including the so-called Gafa (Google, Amazon, Facebook, Apple), which the United States did not like.
The new US proposal consists of “taking the winners of globalization, that is, the 100 most profitable companies in the world, which alone obtain half of the world’s profits,” Pascal Saint-Amans, director of the Center for OECD Tax Policy and Administration.
Regarding pillar 2 – the global minimum tax – less than 10,000 large companies would be affected, according to the OECD.
How much tax revenue?
The OECD has put revenue at $ 81 billion a year, based on a 12.5% rate for Pillar 2.
According to the European Tax Observatory, if the EU applied a rate of 25%, it would increase its current tax revenue by 50%.
If a 25% rate were applied, European banks would have to pay 44% more taxes and companies such as Shell, Iberdrola or Allianz between 35 and 50% more, he said.
