Global tax – 06/06/2021 – Opinion

The agreement in principles established at the last meeting of the G7, a group that brings together the largest developed economies, is an important step towards reforming the taxation of large multinational companies, which today benefit from system failures.

The changes would be based on two pillars. The first is the imposition of a 15% minimum tax on corporate profits, which would apply to all countries. The objective is to interrupt the downward trend in taxation observed in recent decades, resulting from the dispute for investments.

With uncoordinated movements, each nation sought to maximize its position and, in the end, all lost revenue, as companies intensified their search for more favorable tax domiciles.

The second pillar is precisely the attempt to make large multinationals pay more taxes where they do business, and not just where they are headquartered.

The problem of where businesses pay taxes has been growing in recent decades with the digital and dematerialized economy, which has eroded the national tax bases.

Revenue estimates are still unclear, but a study by the Organization for Economic Co-operation and Development (OECD) estimates an increase of 4%, equivalent to $84 billion annually, most to be paid by American firms.

The agreement, by the way, was only possible due to the greater willingness of the United States to allow the taxation of its technology giants. The required counterpart is the end of the attempt by other countries, such as France, to unilaterally impose digital taxes.

The US is also interested in the minimum global tax, now that the Democratic administration wants to increase its own charge (from the current 21% to as much as 28%) to pay for the increased spending on infrastructure without losing competitiveness.

The new rules still need to be detailed and it is not clear which companies would be affected. It will also be necessary to include developing countries, and the topic will be on the agenda of the next G20 meeting, in July. Then came a long process of national ratification.

Even with the potential advance, there are criticisms. The main one is that the minimum of 15% is insufficient and barely surpasses the rates of the nations that most took advantage of the current system, such as Ireland, Holland, Singapore and tax havens. Another is that the biggest beneficiaries of the greatest collection of money would be the governments of rich countries.

But it is undeniable that the changes, if well regulated, have the potential to provide greater tax justice globally.

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