Last June, the G7 countries signed an agreement, deemed to be historic, to establish a minimum corporate tax rate of 15%. The objective? To counter tax optimization of cross-border groups. However, this watered-down agreement is an unprecedented step in the fight against tax fraud. What are the issues?
Interview with Grégory Vanel, dDoctor in international economics and professor at Grenoble Ecole de Management.
In order to address the issues of tax evasion, you point to the phenomenon of "market distortion which is done on the backs of small businesses". Can you be more specific?
Today, part of the tax burden that is not paid by large groups falls on the taxation of small companies (and of course households); this is due to a mechanism that aims to partially compensate for the loss of revenue for the States. For example, academic research in the United States has found that every company with fewer than 100 employees pays $647 more in taxes per year... due to a distortion of corporate tax competition. Small businesses cannot afford to be advised by tax optimization experts and therefore pay a high price.
How is this G7 agreement a step forward in the fight against tax evasion?
To put this into context, over the past 15 years or so, the fight against tax evasion has intensified in the OECD countries - the "rich club". This forum, made up of 39 member countries, has worked to avoid unfair tax competition.
Today, this consensus seems new for three reasons. The first is political: we are indeed witnessing a shift on the part of the United States, which is taking the lead on this issue. This proposal indicates a political engagement with an issue that has up until this point been dealt with from a technical perspective.
It is then a question of interpretation. For the first time, the existence of transnational corporations is recognized in international law. This is a legal breakthrough: international companies thus become subjects of law in terms of taxation since their consolidated activity at the global level is taken into account.
The third point is paradoxical: by recognizing these transnational tax practices, we annihilate part of the tax optimization strategies implemented by these international firms. Why? Because only a portion of the profits will be taxed at a harmonized rate of 15%. Which is a very low rate! It is therefore a watered-down agreement, and the main risk is ending up with a lower tax.
we are indeed witnessing a shift on the part of the United States, which is taking the lead on this issue
In concrete terms, what is this "watered-down" agreement supposed to change?
This is a symbolic agreement. There is a political impetus... which comes from the United States. In any case, this agreement will have to be ratified by the G20, which, it should be noted, includes China. Secondly, the agreement will have to be approved by the 39 member countries of the OECD, which is not easy. It is possible to foresee a deadline of 2023. But, in reality, I bet that the project will be abandoned quickly...
What are your reserves?
There is a complex game going on, on the US side. Joe Biden had initially talked about a minimum corporate tax rate of 28%. That is a total of 36% including local taxes. In the end, the agreement, carried in particular by Emmanuel Macron, was concluded at 15%. For example, a 15% rate would bring in between 5 and 7 billion euros annually for France, while a 25% rate would bring in 26 billion euros. So this is a first step!
At the macro level, the real sticking point is the tax rate. Even if this rate were to be higher, tax optimization practices will not stop any time soon. Why? Because the "lighting engineers" - in reference to my article in The Conversation - that is, the big international banks and auditing companies, led by Big Four will continue to offer certain tax schemes to their clients that are perfectly legal and that will allow tax optimization to continue. Moreover, lack of financial transparency, as such, is the keystone of the capitalist system. Indeed, in order to have cash and to invest, there must continue to be a lack of transparency.
The alternative to make financial transparency possible, could be to tax capital at the border, but I highly doubt this will happen... This agreement is therefore an attempt to respond to tax optimization. In Europe, for example, the real inherent risk in this agreement set at 15% is that the tax rate of countries will fall to the level of the rates present in Ireland, Hungary and Switzerland...