Far from the End
Published in Le Devoir
(Canada) on 2 June 2021
by Jean-Robert Sansfaçon (link to original)
(Canada) on 2 June 2021
by Jean-Robert Sansfaçon (link to original)
Translated from
by Peyton Reynolds.
Edited by Michelle Bisson.
The 136 member states of the Organization for Economic Cooperation and Development are participating in a real marathon in order to come to an agreement on the introduction of a global minimum tax on multinational corporations’ profits. A marathon with obstacles, it might be added, as are all negotiations that involve so many countries with different, or even contradictory, interests.
Let’s not forget that the idea of a global minimum tax on profits comes from the fact that the biggest multinational companies manage to avoid paying taxes where the majority of their profits come from by transferring a large part of their revenue to real or virtual subsidiaries registered as tax havens.
According to an International Monetary Fund evaluation, nation states would thus annually be deprived of fiscal revenues ranging from $500-600 billion, the amount of money that ends up in the pockets of shareholders instead of going toward the improvement of public services and infrastructure.
The governments of several large countries have been seeking for a long time to correct the situation, with their efforts neutralized by the United States of Donald Trump, who saw it as an obstacle to the expansion of the American digital giants.
Things have changed since the arrival of President Joe Biden, whose government has just proposed a global minimum tax of 15% to 21%, more than the percentages discussed so far by the OECD. The story will continue on July 9 and 10, the Group of 20 meeting dates, with the first deadline for negotiations that could lead to an agreement later on this autumn.
That said, the game is far from being won by those defending a global minimum tax. First, there’s the fact that the American proposition would limit the application to only very large companies, barely 100 of them, in order to avoid harming the competitiveness of growing American firms.
It must be understood that the Democrats' first objective is to pass on the message to large American companies that they need to pay their taxes in the United States. Consequently, if you pay less than 21% tax on the entirety of profits earned globally thanks to financial games and unwarranted advantages granted by certain countries, you will nevertheless have to pay the difference to Washington.
If the idea is interesting for American public finances, it doesn’t satisfy the expectations of the majority of the countries that were hoping to expand the minimum tax to a larger number of multinationals.
Then, there’s the tax rate itself. Until very recently, countries like France and Germany spoke of a rate between 12.5 and 14%. However, at 15% or more, it would be difficult to convince countries like Ireland, the Netherlands and Luxembourg, recognized for their advantageous tax rules for foreign investors.
Ireland has already categorically rejected the American proposition. There is no question of raising taxes higher than the current rate of 12.5% on companies that choose to establish their European headquarters in Dublin.
Ireland is not alone. In fact, all the smaller countries that, for lack of a large pool of consumers, adopted the strategy of low taxation, will lose with the new proposition. While adjustments will need to be made to prevent the bankruptcy of certain less-developed countries, this is definitely not the case for the three nations previously named.
For the moment, in the absence of an international agreement, certain countries like France and, soon, Canada, have chosen to tax the total revenues earned on their territories by the digital giants, and not the profits, which are difficult to calculate on a local basis. In her most recent budget, our federal minister of finance, Chrystia Freeland, introduced a tax of 3% on revenue received online from Canadian clients by foreign companies. This tax will certainly disappear in the event of an international agreement setting a rate and a method of calculating profits on a local scale.
Dozens of other obstacles, some very technical, such as the establishment of affected activities, others more political, such as the unavoidable quarrels between the left and the right, will arise as negotiations progress. It goes without saying that the presence of the United States at the table adds interest to these negotiations, whose end, although imperfect, would correct a part of the inequities created by the digital giants’ rise to power in the world of commerce.
Let’s not forget that the idea of a global minimum tax on profits comes from the fact that the biggest multinational companies manage to avoid paying taxes where the majority of their profits come from by transferring a large part of their revenue to real or virtual subsidiaries registered as tax havens.
According to an International Monetary Fund evaluation, nation states would thus annually be deprived of fiscal revenues ranging from $500-600 billion, the amount of money that ends up in the pockets of shareholders instead of going toward the improvement of public services and infrastructure.
The governments of several large countries have been seeking for a long time to correct the situation, with their efforts neutralized by the United States of Donald Trump, who saw it as an obstacle to the expansion of the American digital giants.
Things have changed since the arrival of President Joe Biden, whose government has just proposed a global minimum tax of 15% to 21%, more than the percentages discussed so far by the OECD. The story will continue on July 9 and 10, the Group of 20 meeting dates, with the first deadline for negotiations that could lead to an agreement later on this autumn.
That said, the game is far from being won by those defending a global minimum tax. First, there’s the fact that the American proposition would limit the application to only very large companies, barely 100 of them, in order to avoid harming the competitiveness of growing American firms.
It must be understood that the Democrats' first objective is to pass on the message to large American companies that they need to pay their taxes in the United States. Consequently, if you pay less than 21% tax on the entirety of profits earned globally thanks to financial games and unwarranted advantages granted by certain countries, you will nevertheless have to pay the difference to Washington.
If the idea is interesting for American public finances, it doesn’t satisfy the expectations of the majority of the countries that were hoping to expand the minimum tax to a larger number of multinationals.
Then, there’s the tax rate itself. Until very recently, countries like France and Germany spoke of a rate between 12.5 and 14%. However, at 15% or more, it would be difficult to convince countries like Ireland, the Netherlands and Luxembourg, recognized for their advantageous tax rules for foreign investors.
Ireland has already categorically rejected the American proposition. There is no question of raising taxes higher than the current rate of 12.5% on companies that choose to establish their European headquarters in Dublin.
Ireland is not alone. In fact, all the smaller countries that, for lack of a large pool of consumers, adopted the strategy of low taxation, will lose with the new proposition. While adjustments will need to be made to prevent the bankruptcy of certain less-developed countries, this is definitely not the case for the three nations previously named.
For the moment, in the absence of an international agreement, certain countries like France and, soon, Canada, have chosen to tax the total revenues earned on their territories by the digital giants, and not the profits, which are difficult to calculate on a local basis. In her most recent budget, our federal minister of finance, Chrystia Freeland, introduced a tax of 3% on revenue received online from Canadian clients by foreign companies. This tax will certainly disappear in the event of an international agreement setting a rate and a method of calculating profits on a local scale.
Dozens of other obstacles, some very technical, such as the establishment of affected activities, others more political, such as the unavoidable quarrels between the left and the right, will arise as negotiations progress. It goes without saying that the presence of the United States at the table adds interest to these negotiations, whose end, although imperfect, would correct a part of the inequities created by the digital giants’ rise to power in the world of commerce.
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