Green light for global minimum tax on multinationals | 130 countries have supported the reform of the tax system promoted by the G7

From London

A total of 130 countries supported the two pillars agreed at the G7 meeting in June to reform the international tax system for multinationals.
Among the nations are all those of the G20, including Argentina, which between July 9 and 11 will vote in Venice on the proposal. Only nine of the 139 jurisdictions that make up the OECD’s Inclusive Framework, including the Republic of Ireland and Hungary, have rejected the plan. OECD Secretary General Mathias Cormann claimed victory. “After years of hard work and negotiations, this historic package will ensure that multinationals pay what they owe in taxes in all regions of the world,” he said.

Another has been the position of key members, like India, and central non-governmental organizations throughout this long negotiating process, for whom the agreement is full of holes and favors developed countries. India’s swift response is particularly relevant given the heavy diplomatic pressure it has undergone not to publicly agree with Argentina on the need for a broader agreement. On Monday, during a virtual press conference convened by the influential G24, which brings together developing countries, the Minister of the Economy Martín Guzmán had clearly expressed his criticism of the reforms. Although he said this was a “positive step”, he stressed that the 15 percent minimum tax on multinationals is very low and that the revenue allocation system “generates a greater inequality than the existing one “.

In its reaction to the OECD statement, India has moved closer to Argentina and has shown that, for the time being at least, the crucial unity of the G24 and the African Forum on Tax Administration is respected. . “India is in favor of a consensual solution that is simple in principle and simple to implement. This solution must contain a clear and meaningful allocation of resources that provides sufficient income to developing and emerging countries, ”the statement from India said. In the same vein, Martín Guzmán took the floor shortly after the publication of the OECD statement. “Argentina, after firm and valuable multilateral negotiations in which agreements were built, accompanied the consensus. Until the G-20 summit in October, we must continue to work on the details of the agreement. so that it is actually healthy for the world. “, He said.

Despite these reservations, Argentina, India, the G24 and the African Forum on Tax Administration are among the 130 OECD Inclusive Framework countries that have endorsed the two pillars of the reform. How is this understood? “The only option on the table was either to accept everything as a whole or to reject everything,” he told PageI12 Alex Cobham Director of the Tax Justice Network (TJN). In all-or-nothing terms, it would have been foolish to reject the first serious multinational tax reform since the current system of tax havens and global corporate tax evasion was consolidated between the 1960s and 1990s.

In this context, TJN, which has led the fight for tax justice over the past two decades, saves the change of principles in public debate and in proposals. “This can be a turning point in the fight against corporate abuse. The $ 1.38 trillion in profit transfers from the biggest multinationals will shrink for the first time. It’s important, ”says Cobham PageI12.

The half empty glass

At the Independent Commission for the Reform of International Business Taxation (ICRICT), which includes Joseph Stiglitz, Thomas Piketty and Gabriel Zucman, they called the announcement a “missed opportunity”.

ICRICT considers that the two pillars of the reform cover only a very small number of multinationals with a very low percentage of minimum tax. In the case of the first pillar, intended mainly for digital companies, it will affect around 100 companies. In the case of the second pillar, for the rest of the large companies, it only concerns those with a turnover exceeding 750 million dollars, that is to say a total of about four thousand companies.

“ICRICT considers that a comprehensive reform would make it possible to tax the profits of ALL multinationals in the world on the basis of their actual activities in each country, that is, to attribute the global profits of multinational companies to different countries according to a formula, based on the main profit drivers: jobs, sales and assets AND an ambitious global effective minimum tax of 25% for multinationals would end harmful tax competition between countries and reduce the incentive for companies. multinationals to transfer the benefits to tax havens, ”the statement said.

This increase in the minimum corporate tax and an expansion of the multinational universe would mean a very large increase in tax collection even for developed countries, which may pave the way for a more substantial North-South agreement in time. pandemic. The ICRICT itself points out that a minimum tax of “at least the 21 percent currently proposed by the United States and Argentina” would provide hundreds of billions of dollars in additional revenue. If it suits the United States, the end is open.

How is the film going? With this statement, support for the inevitable G20 hype in Venice is ruled out, but there is a way to go between now and the OECD summit in October. The opacity of the OECD and its rigid hierarchical system are obstacles. The unity of the G24 and the African Forum on Tax Administration, added to the contradictions in developed countries, can foster change.

On one thing the NGOs and these nations agree: the change is important in principle, insufficient in practical terms and will require additional steps, as Richard Murphy, the 2003 co-founder of TJN, pointed out in a commentary. blog this Friday. “It is true that the minimum rate is very low, that a large part of the collection will go to developed countries and that banks and the financial sector will be exempt. It is also true that there will be very narrow limits for the collection of extractive industries and multinationals. Why celebrate then? For three reasons. First of all, what has happened is in itself a big step forward. Second, it is better for there to be an agreement than not. And thirdly because, since the agreement is not enough, it will lead to a new round of negotiations, ”says Murphy.