When the OECD announced a historic agreement for a global corporate tax of 15% the enthusiasm was palpable: finally, a bulwark against multinational tax avoidance! The new report fromEU Tax Observatory casts a much less flattering light on this initiative. As it turns out, actual tax revenues will be only a fraction of those expected, thanks to a series of loopholes that make the deal less effective than hoped.
The context
The deal, brokered by the Organization for Economic Co-operation and Development (OECD), aimed to put an end to the accounting and legal maneuvers used by multinationals such as Apple and Nike to shift their earnings to tax havens such as Bermuda and the Cayman Islands. These maneuvers result in a loss of tax revenue estimated at between 100 and 240 billion dollars per year. According to the EU Tax Observatory report, the agreement was expected to generate revenues equal to almost 10% of the total tax revenues of the businesses globally. Instead, due to loopholes introduced during the deal's development, it is expected to generate less than half that amount.
The loopholes
One of the most significant escape routes involves companies with tangible assets, such as factories and warehouses, in a particular country. These companies may continue to pay a tax rate of less than 15%. Another avoidance strategy for this tax allows countries to offer tax credits for certain activities. For example, those like research and development. And this further reduces companies' effective tax rate. These loopholes not only reduce tax revenue, but could also incentivize companies to move production to countries with tax rates below 15%. Furthermore, governments' rush to provide tax breaks for green technologies could have the same effect as emptying public coffers, according to the EU Tax Observatory.
Global tax: a catastrophe?
Despite these criticisms, the agreement for this tax still represents a step forward in the fight against global tax avoidance. For example, the OECD introduced an automatic exchange of information between tax authorities in 2017, which has led to significant results in the fight against tax evasion. The global corporate tax is a step in the right direction, but it is far from the final solution. It is vital that the details of the agreement are reviewed and strengthened to ensure it achieves its intended objectives. Only then can we say we have made real progress in the fight against global tax avoidance.
Meanwhile, the EU's tax watchdog is calling for a 2% global tax on billionaires' wealth, a proposal that would raise $250 billion a year from fewer than 3.000 people. Will he be able to get this money? we'll see
