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A minimum tax on multinationals? Five minutes to understand a tax revolution


Joe Biden, through the voice of the Secretary of State for the US Treasury, is in favor of the introduction of a measure long called for by

Tax evasion.

A subject that comes up in the public debate at each presidential election.

All the candidates promise to make it a major axis of their policy, to do everything to recover the billions of euros that would escape French public finances each year, according to available estimates.

Progress is however rare.

In terms of taxation, the only national initiative is futile.

Only a collective dynamic could allow progress on the file.

And a breach may have just opened on Monday.

"We are working with the G20 countries to agree on a minimum corporate tax rate," Janet Yellen, US Treasury Secretary of State (equivalent to the post of finance minister in France) said on Monday. during a speech in Chicago.

Many see it as the start of a possible upheaval in the fiscal game on a global scale, on condition that these ambitions are pursued.


What is a minimum tax?

Today, all countries are free to set the tax rate of their choice for companies established in their territory.

A situation which inevitably creates a competitive game, some states betting on very favorable taxation to attract multinationals eager to save sometimes astronomical sums.

The digital giants have taken advantage of this lack of harmonization.

By setting up their headquarters in countries offering very favorable fiscal conditions, they have managed for years to pay a derisory level of tax in relation to the profits actually generated.

To achieve this, these companies play in particular on profit transfers between subsidiaries and parent companies.

Creating a common base at the international level would make it possible to limit the effects of this strategy.

"The adoption of a minimum effective tax rate would reduce profit shifting and generate substantial gains in tax revenue for all countries, with little effect on their attractiveness," wrote the Council for Economic Analysis, attached to Matignon, in a note published in November 2019.

Why would this measure be a step forward?

Establishing an international minimum tax rate would de facto reduce the interest in transferring profits to a third country.

And American ambitions are not limited to this one proposition.

Janet Yellen also wants to adjust corporate tax according to the profits made by multinationals in a given country, whether or not they have a so-called stable tax establishment in these territories.

This last measure, very clearly, targets the digital giants in particular.

Built on an infrastructure allowing them to be established in a country without the slightest physical presence, they have thus succeeded in greatly limiting their taxation.

"In its absence (of permanent establishment), companies can thus avoid paying IS

(corporate tax, Editor's note)

in the country", confirmed the CAE report.

While it is difficult to precisely measure the savings made, CAE experts have estimated the shortfall for France linked to the tax avoidance strategies of multinationals.

They estimated that the average effective tax rate of a French multinational with at least one subsidiary in a tax haven is 26% lower than that of an equivalent multinational, but without a presence in a tax haven.

That is to say a shortfall of 3.3 billion euros in taxes per year.

Regarding foreign groups present in France, the tax rate would be 17% lower.

This represents a shortfall of 1.3 billion euros.

Or 4.6 billion euros in total.

In the event of an international agreement, a new tax framework would make it possible to recover at least part of it.

It is difficult to know what this minimum tax rate would be.

But Joe Biden's plans could give an order of magnitude.

Since 2017, under the leadership of Donald Trump, the United States has taxed the profits made abroad by American companies, between 10.5% and 13%.

His successor intends to raise this rate to 21%, on condition of obtaining the approval of parliamentarians.

A basis for discussion?

Reasons to hope for a positive outcome?

It's like an alignment of the planets that now seems to be taking shape.

The change of presidency in the United States can play a fundamental role.

Upon coming to power, Joe Biden implemented a very expensive stimulus package in an attempt to revive the US economy.

To finance it, he is counting in particular on an increase in corporate tax, drastically reduced by Donald Trump, to reduce it from 21% to 28%.

This is the largest tax hike decided by the United States in peacetime, without returning to the rate that prevailed before the Trump era, when it stood at 35% for corporations.

Suffice to say that the country of Uncle Sam also sees its interest in the idea of ​​implementing a minimum tax on companies.

This could allow it to suffer less from the effects of tax competition on the international scene.

In the midst of a health crisis, and to revive dying economies, other states could be tempted to take the plunge.

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Another sign of hope, even digital giants say they are in favor of the introduction of such a measure.

"We support a corporate tax hike," Amazon boss Jeff Bezos said in a statement released by the group on Twitter.

A message from Jeff Bezos.

- Amazon News (@amazonnews) April 6, 2021

The International Monetary Fund also provided support for the project.

"We have long supported the idea of ​​a common global minimum tax," IMF chief economist Gina Gopinath said at a press conference on Tuesday, deploring the extent of tax evasion in the world, which "Reduces the tax base from which governments can collect revenue and make necessary social and economic spending."

Why has it not been done before?

The minimum taxation project has long been supported by economists and politicians.

When the member countries of the European Union ratified the OECD's plan to fight tax evasion in 2015, MEP Philippe Lamberts regretted a lack of ambition.

To remedy the massive discrepancies between the economic reality of companies in each country and their "lack of contribution to the general interest", he called for "the progressive harmonization of corporate income tax, starting by harmonizing the definition of profit. and distribute it among the member states on an objective basis ”.

The balance of power, at the time, was much less favorable for countries wishing to implement such a project.

Today, the Franco-German couple is on the front line to move forward on the file.

The Minister of the Economy Bruno Le Maire also seems to have fully understood the revolution that was perhaps in the process of seeing the light of day.

He believes that a global agreement on international taxation is now “within reach” and calls for “seizing this historic opportunity”.

The era change may begin this Wednesday.

The subject should be discussed today, at a meeting of the G20.

The organization hopes to find an agreement by the meeting of finance ministers and central bankers of member countries on July 9 and 10.

Source: leparis

All business articles on 2021-04-07

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