Recommended by the G20 in 2017 under the auspices of the Organization for Economic Co-operation and Development (OECD), the reform aims to transform corporate taxation, a national priority, into a group age. And globalization. The digital economy. It follows from the first scheme successfully implemented by the OECD: Automatic transfer of banking information between countries. What was able to end banking secrecy and collect 10 102 billion in taxes since 2009? It continued to face tax competition between states to attract multinationals.
The reform has two “pillars”: “Pillar 1” which takes a portion of the profits of a multinational company (e.g. 20%) and distributes the revenue between countries according to the turnover achieved. Example: Company A makes $ 100 billion in profits. It pays 20% tax or $ 20 billion. The amount is then split: if France achieves 10% of its sales, France recovers $ 2 billion. While the OECD proposes to target companies with a turnover of more than 750 million in areas of operation (including digital services and customers), the new U.S. Democratic administration sets another benchmark. “The United States proposes to take the winners of globalization, for example the 100 most profitable companies in the world, only half of the world’s profits.” Pascal St.-Amans, director of the Center for Policy and OECD Tax Administration, explained.
Among them are digital giants like Google, Amazon, Facebook or Apple, whose profits are increasing. The $ 100 billion in tax revenue between the “pillar 1” countries will be re-allocated.
Pillar 2 is the imposition of a global minimum tax on profits. The rate quoted in the OECD discussions was 12.5%, but the United States considered the rate to be 21%, not “based on the world average, but on a country-by-country approach.” In other words, “the profits of multinational companies will be subject to the minimum tax wherever they are”. If the NGO Network for Tax Justice (Tax Justice Network) maintained a rate of 21%, it would “generate at least $ 300 billion in additional revenue for the world.”
Negotiations have stalled over the Trump administration ‘s decision to pursue a broader policy of tax breaks. Corporate tax (CIT) in the United States fell from 35 percent to 21 percent during his tenure. Everything changed after the election of Joe Biden, in the context of an epidemic that was forcing states to find funding for plans to end the crisis: GM countries spent $ 12.7 trillion. So a shocking proposal from Treasury Secretary Janet Yellen in early April to bring about a desirable reform in the taxation of multinational corporations. The initiative, backed by the IMF, comes in the wake of the US president’s plan to raise corporate taxes to 28 percent. The United Kingdom wants to increase this to 25 percent by 2023.
“Technically, the reform is ready, but are we sure of political correctness? “I was surprised a few weeks ago when French Finance Minister Bruno Le Meyer confirmed France’s position on the same wavelength as Germany. The OECD hopes for a political agreement “as soon as possible”. “The next steps are the G20 on July 9 and 10, and a final meeting in October,” said Mr Saint-Amans.
The agreement should then be the subject of a multifaceted convention. Expect intense lobbying from multinational companies and consulting and law firms leading a career in tax optimization. While praising the great progress made by Germany, France pledged to move the file forward when it presides over the European Union in the first half of 2022. This is not an easy task. Many European countries are not in favor of the reform, with Dublin, the European headquarters of many multinational corporations starting from Ireland, applying a 12.5% corporate tax rate since 2003.
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