Looking to make tax havens unattractive | The G20 approved the global minimum tax

The G20 finance ministers approved this Saturday in Venice a “historic” agreement for the imposition of a tax on multinationals, with the aim of putting an end to tax havens and which should come into force in 2023. It is is an agreement for a “more stable and fairer international tax architecture, which establishes a global tax of” at least 15% “on the profits of multinationals. The Argentine government has acknowledged that” although there is still a long way to go, we are facing a historic moment, a real opportunity to coordinate on a global scale and to put an end to the fiscal holes which harm the peoples of the world and their development possibilities ”.

Of course, more would be better, ”Martín Guzmán stressed during the deliberations. The Minister of the Economy assured that the agreement for a minimum global enterprise rate is “an important step in the right direction, but there are still aspects to be defined before our next meeting”.

“We believe that this year the multilateral agreements have more content, we are certainly celebrating the progress on the international tax front, we have also raised a series of concerns which we hope can be addressed between these meetings and the meetings of the presidents in October, “” When it comes to defining the details, the specific rules of the global tax revolution, we think the idea of ​​a minimum global tax of at least 15% is a positive step.

In previous meetings, Argentina had raised the convenience that the rate to be set as an overall minimum income tax should be 21%, in addition to the rate that some jurisdictions apply to attract the establishment of large companies that do not exercise not their operations from there, and closer to the tax rate in the countries where these companies make their profits.

The mechanism for applying the future global minimum tax aims to respond to tax evasion maneuvers practiced by large companies. Taking into account the agreements between countries aimed at avoiding double taxation, it is expected that a company which makes profits in a certain country but is based in another, if it pays its income tax in the country of establishment, shouldn’t do it also in this one where it develops your business. Faced with this ease, many large global companies are setting up in countries with very low taxation (tax havens), where they pay a minimum tax (a country, for example, which charges 6%) and avoid paying where they charge more (Argentina, for example, 35%, or the United States, 28%). Setting up in a low-tax country is, in most cases, a fiction just to avoid paying part of the tax.

The future minimum tax will oblige the company to declare how much it pays in the country of establishment (in the example given, 6%), and it will be obligated to pay in the country where the profit is generated a rate equivalent to the difference between this rate and the minimum rate of 15% (in the example, 9%). The proposal to raise the minimum rate to 21% would then increase the tax liability of the multinational company vis-à-vis the country where it obtains the profit (in the aforementioned case, it would pay 15%, the difference between the minimum rate 21 and the 6 that you will pay in the country of establishment).

Speaking at the G20 session on international taxation in Venice, Guzmán underlined “the commitment to celebrate this important step at the international level to fight against tax evasion by multinational companies”.

From the perspective of developing economies, he said, “one aspect that needs to be addressed is the prohibition of unilateral measures for the universe of international corporations, which is broader than that achieved by the proposal.” Guzmán trusted in “being able to work together the details and create a system that adapts to today’s world”.

“We will certainly support this proposal. Ultimately, we all want to have greater public policy capacity to improve the well-being of people of all nations,” he concluded.

Global support

The countries which represent 85% of the world GDP want to tax fairly the digital giants who largely evade taxes.

Several members of the G20, such as France, the United States and Germany, have campaigned for a rate above 15%, but several members of the working group of the Organization for Economic Co-operation and Development (OECD), like Ireland or Hungary, still do not give. support signals.

During the day, the islands of Saint Vincent and the Grenadines instead signed the agreement, according to the OECD page, so that 132 countries were concluded in its favor.

In the declaration, the ministers called for the approval of the 139 members of the OECD working group which brings together advanced and emerging countries.

The reform aims to distribute equitably among countries the right to tax the profits of multinationals and targets the “100 most profitable companies in the world, which alone make half of the world’s profits”, explained Pascal Saint-Amans, director. of the Center for Tax Policy and Administration.

The global minimum tax would affect less than 10,000 large companies, that is, those with annual turnover exceeding 750 million euros (890 million US dollars).

A minimum effective rate of 15% would generate additional income of US $ 150 billion per year, according to the OECD.