“This is the biggest change in tax rules in the …

The G7 agreement on a global minimum corporate tax can be the starting point of a fairer global tax order or a gigantic scam which will worsen the inequalities between developed countries and the periphery. As expected, the deal was called “historic” by the G7, but make no mistake about it. The same thing happened in April 2009 during another summit, that of the G20, which, in the face of the global financial debacle, announced measures which would mean “the end of the era of tax shelters”. Shortly after, this initiative went to the basket. Will the same thing happen now with the multinational tax?

The agreement is based on pillars. The first is the commitment to achieve a “fair solution for the allocation of tax rights” on the largest multinational companies on the planet. The second is the establishment of an overall minimum rate of “at least” 15 percent.

The goal of the first pillar is digital businesses. The subsidiary of Amazon In Luxembourg, for example, he did not pay taxes in 2020 in the European Union despite a profit of more than 40,000 million euros.

The key question for the developing world is how the estimated $ 275,000 million collected from this minimum tax will be distributed. The proposal of the Organization for Cooperation and Development (OECD) is that developed countries, where the headquarters of multinationals are located, keep most of this collection. The proposal of organizations such as the Tax Justice Network and groups such as the G24, which brings together developing countries, including Argentina, is that the collection go to the country where sales and profits have taken place, that whether in a central country or in a peripheral nation.

Cash speak with Alex cobham, director of the Tax Justice Network. In May of last year, in this same economic supplement of Page 12 Cobham had proposed that “businesses that earn from the coronavirus pay a special tax.” Now with this initiative bringing this claim online, it’s interesting to know what you think of it.

– Is the G7 agreement a step forward, to the side or back?

– There are different opinions, even in our movement. But I would say it’s a step forward, albeit with many caveats. Since then, the minimum tax of 15 percent has been low. Our analysis shows that 25 percent could raise about $ 780 billion more. Even at this rate, multinationals would retain three-quarters of their sizable profits. The 21 percent tax that the US government was initially proposing would also have allowed for a much higher collection.

– Because it’s important?

– Because, although it has been discussed at the OECD for two and a half years, it is the first time that rich countries have committed to a specific rate. Politically, it matters not because of the detail, but because it is a narrative shift. Rich countries have adopted US Treasury Secretary Janet Yellen’s proposal against tax competition. I believe that ten years from now we will see this agreement as a moment of change in which tax competition between nations was no longer seen as normal policy and was seen as an evil that had to be overcome.

– Likewise, the tax has not yet been implemented.

– It’s like that. At the moment, we only have words. If this proposal is effectively implemented with the principles and mechanisms proposed by the OECD, it will be the biggest change in fiscal rules in the last 100 years, but at the same time it will generate an inequality even worse than that which currently exists between and peripheral countries. . We estimate that around $ 275 billion a year would be collected, but if the OECD rules are followed, the G7 countries, which make up a very small percentage of the world’s population, would take 60 percent of these resources. And the rest would go to other OECD countries, not developing countries.

– Because? How would that work in practice?

– The second pillar of the proposal says nothing about the distribution of tax collection. He said nothing because the G7 in fact supports the OECD proposal, which states that a large part of the collection should go first to the countries where the headquarters of multinationals are located. Suppose the French multinational Danone makes $ 1 billion in profits in Brazil, but pays no taxes because it transfers those profits to the Bermuda Islands where no wealth has been generated and no taxes are paid. With the rule change proposed by the G7, the 15% tax would bring in $ 150 million. Where would these funds go? Would they go to the country of origin of the sale, Brazil? No. In the OECD proposal, they would go to France because there is the headquarters of the multinational.

– In the press release of June 5, the G7 specifies, however, that this tax must be implemented country by country. What does mean?

– This marks one of the breakthroughs in negotiating with Biden, unlike what happened with Trump. With Trump, the minimum rate under discussion was based on the OECD’s position of global mix (global merger), in which the global rate paid by multinationals in their operations in different countries was taken into account. If this amount reached 15%, multinationals did not have to pay any additional tax. What the Biden government agreed was that the sum or mixed is done at the country or jurisdiction level. This is an important change because it does not compensate for what a multinational does not pay in one jurisdiction with what it pays in another.

– This means that if a multinational pays less than 15 percent in Argentina, Brazil or Peru, it will have to pay the difference in those countries, up to 15 percent.

– Potentially yes, but for that it is necessary to put an end to the privilege which is granted to the country of origin of the multinational. In the OECD proposal, the home country is the first to be entitled to this part of the taxes until the 15% collection owed by that multinational in its jurisdiction is completed. This is the proposal that is on the table. The key is this point. We cannot allow this criterion of allocation of the minimum tax to continue to prevail because then what I mentioned earlier will happen: we will have a huge change in international tax rules and a widening of inequalities between rich countries and others.

– How is the process of this tax treaty going?

– The next big step is the G20 meeting next month. There are three things that are going to happen. First, that countries like Ireland and other tax havens will try to join forces to defend the current economic model and stop or reverse the changes in the G7. Ireland has a nominal tax rate of 12%, but the effective rate paid by US multinationals is 2%. The changes proposed by the G7 would put an end to this model. If a multinational pays less than 15% in Ireland, Bermuda or the Netherlands, it would have to cover that difference, which would prevent the current tax competition between jurisdictions that offer lower tax burdens to attract investment.

– What else?

– Second, multinationals will intensify lobbying to stop the changes. On the other hand, the most positive stake is that the countries which are outside the framework of the G7 will mobilize because these proposals do not favor them. India is perhaps one of the leaders of this group of countries. Argentina other. Both countries have been actively involved at a technical level in internal G20 discussions so that they are well placed to influence.

– What should they do?

– They must push for a higher minimum tax and a fair distribution criterion so that the tax is recovered. There is the possibility of forging alliances with other developed countries that would be favored by more ambitious proposals, even G7 countries or nations like Australia. In other words, there can be a coalition between developing and developed countries asking for more, based on what the G7 has agreed to, but ensuring that there is a fair distribution of the benefits instead of the grotesque proposition that the OECD wants to put on the table. . .

– Does the G20 have enough power to improve the G7 proposal?

– At the institutional level, the OECD has obtained the mandate to review the G20 global tax system. So the G20 can tell the OECD that the system it designed is not working and that we have to start all over again. If we are realistic, this will not happen because, in reality, the G7 are the most powerful countries of the G20 and the OECD. But what can be achieved is a change in how it will be distributed. There is a lot of pressure to speed up negotiations and for the G20 to conclude with a more detailed proposal on how the system is going to work. There is a lot of political pressure to move forward. I think it will happen this year because rule change is essential and governments and multinationals need time to plan how they will adapt to this new order.

– Tax Justice Network began in 2003 as an isolated voice in the face of an international tax system increasingly destabilized by tax dens and tax avoidance and evasion mechanisms. Today, the proposals that were raised at the time are being debated in international forums. Are you optimistic about the possibility of finally achieving a fair tax system?

– I think the story has changed. We don’t have the proposals we need, but it is globally recognized that corporate abuse is intolerable. The ideas are on the table and I think that while it may take longer than we would like to achieve full and comprehensive reform, we are on the right track to achieve it.