The world has come closer to the biggest corporate tax overhaul in a century



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This weekend, the world's largest economies will consider a redesign of global tax rules that experts consider to be the most important of the more than a century.

The world's largest economies have come together this weekend to agree on a redesign of global corporate tax rules, which experts say would be the largest in more than a century.

G20 Finance Ministers discussed a plan developed by the Organization for Economic Cooperation and Development at a meeting on Saturday in Japan. The proposal is designed for digital businesses, but also has major implications for traditional multinational corporations.

"We welcome recent progress in solving the tax problems related to digitization and endorse the ambitious work program that consists of a two-pillar approach," ministers said in a statement Sunday. "We will redouble efforts to reach a consensual solution with a final report by 2020."

US Treasury Secretary Steven Mnuchin said at the meeting that the plan had broad support, but that there was still work to be done.

"It looks like we have a strong consensus, so we have to take the consensus here and deal with the technicalities of how we turn that into an agreement," he said.

The recasting aims to remedy the shortcomings of global taxation by two main routes. The first is a framework that would help solve the problem of knowing when the tax should be paid and whether it should be collected where the buyers or sellers are located.

The second would ensure that multinational corporations pay a minimum level of taxes, discouraging them from transferring their profits to countries with lower tax levels. If a company pays less than the minimum, the countries in which it operates may be able to claim more tax.

Changes in these two areas would help modernize the global tax infrastructure.

Pascal Saint-Amans, director of the Center for Tax Policy and Administration of the OECD, said that a redesign was imposing because the Internet had changed the way in which trade was done.

In the years following the global financial crisis, anger of public opinion has erupted against companies such as Amazon and Apple, often accused of evading tax by installing in countries where rates are low.

Changing tax rules is a way for countries to increase their income. Saint-Amans used the example of Netflix, which is based in the United States but has millions of customers in other countries.

"[With Netflix]How much tax do you give to the United Kingdom, for example? If they do not have a physical presence in the UK, there will be practically nothing taxable … because intellectual property is in the United States or elsewhere, "he said. frustration ".

There is still a long way to go before implementing any changes. The first G20 presidents and prime ministers could approve a redesign in 2020. This would require considerable technical work, which means that companies should not see changes for many years.

"The work plan is essentially two or three different ideas that, for now, have not received the overwhelming support of any of them," said William Morris, Global Tax Policy Officer at PricewaterhouseCoopers. .

The benefits of globalization

Yet corporations and governments have a strong incentive to work for a new global tax framework. If that did not happen, Morris said every country would apply its own rules, creating a patchy regulatory system that would be "terrible" for trade and investment.

British Finance Minister Philip Hammond said in a tweet Before the G20 meeting, which will bring together representatives of the world's most powerful economies, he plans to "push for changes to global tax rules to reflect how digital businesses create value" .

"The digital economy has brought great benefits, but it is evolving at a steady pace and international rules need to be updated," wrote Hammond.

If no progress is made on global change, several countries, including the United Kingdom, may choose to go ahead with their own taxes.

Britain, for example, is asking for a 2% tax on digital service sales in the UK as of April 2020.

"We must all hope that it will work. Because the alternative is chaos, "Morris said. "This could have huge consequences on how business is done, on countries and on growth. I think people really have to pay attention to that. "

The example of Ireland

Any new tax system is likely to create winners and losers.

Ireland could be one of the most affected. The country's economy is driven by exports and could lose ground if countries where consumers are based are allocated a larger share of tax revenues.

Gerard Brady, chief economist of the Irish business lobbying group IBEC, said that such a change could cost Ireland up to $ 2 billion a year in tax revenue.

The biggest threat comes from plans to set a minimum level of global taxation for large corporations.

The country's tax rate of 12.5%, has been shown to be attractive to foreign companies. Google, Apple and Pfizer are all very present in the country.

The European Commission decided in 2016 that Apple had benefited from unfair tax benefits from Ireland. Last year, Apple paid the 13 billion euros ($ 14.7 billion) due plus interest. (Ireland appealed the decision).

Establishing a global tax standard could reduce the attractiveness of Ireland. Brady said, "This would compromise our ability to use the tax as a tool."

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