The taxation of multinationals: towards harmonization after a global agreement
I- Presentation of the new tax
A novelty in the world of taxation: on July,2021, an agreement was reached at the Organization for Economic Cooperation and Development (OECD) concerning the harmonization of a global corporate tax. This was also confirmed by the end of October 2021 at the G20 summit After negotiations nearly 130 states have agreed to reform the taxation of multinationals based on two pillars: on the one hand a new distribution of rights to tax that would no longer tax exclusively according to the location of the headquarters of the company. On the other hand, a minimum tax rate of 15% on profits would be introduced. This would affect companies with a turnover of at least 750 million euros, this reform is mainly aimed at GAFAM companies (Google, Apple, Facebook, Amazon and Microsoft).
Even if several countries considered as tax havens have approved the agreement, some countries do not hide their reluctance. This is the case of Ireland and Hungary, which have not signed the declaration and find the minimum rate too high compared to their applied rate.
As for Switzerland, the Federal Department of Finance has announced that it will join under certain conditions and is asking for recognition of the "interests of small innovative countries".
The consequence for these countries, including Switzerland, would obviously be economic.
This tax harmonization would be applicable to all multinationals, which would be taxed in the same way from now on, but this would not have the same economic repercussions for the countries that apply it. This agreement is also denounced, notably by the NGO Oxfam, because it would only benefit rich countries.
On the other hand, this agreement is welcomed by several countries, the French Minister of Economy, Bruno Le Maire, and the German Minister of Economy, Olaf Scholz, recognize the importance of this global agreement for a better tax justice. Indeed, it allows a better distribution of profits between the countries where these large companies make them and those where they are located.
II- Consequences of the new tax
The entry into force of such a measure is expected for 2023. In practice, the introduction of a minimum tax of 15% would allow the home country of the company to collect the tax in the case where the company is taxed at less than 15% in another country. For example, a German company taxed at 9% in Hungary would be required to pay 6% to the German state.
At the European level, this reform will prevent tax evasion, which would have cost European countries 80 billion in lost tax revenue by 2020.
In this sense, this agreement has repercussions for the states that have not signed it. As a result of the standardized tax rate, countries with lower taxes could suffer a strong relocation of companies that have no more tax interest in locating precisely in these countries.
Our firm specialized in tax matters is at your disposal for
any questions or requests for assistance on this subject.