Societies and politicians in Western and Eastern countries have complained for years as multinational companies shifted profits from the grip of tax collectors to low-tax havens.
The OECD estimated that in 2015, avoidance robbed the public treasuries across the globe of USD 100-240 billion, or 4-10% of global corporate-tax revenues per year. For many governments facing the COVID-19 crisis, and especially in terms of its fiscal impact, they are making an effort to patch fiscal deficits. New rules in global taxation are coming to force giving some hope to end money laundering and increase states revenue.
Across the Atlantic, President Joe Biden plans to raise taxes on corporate profits, including their foreign income. This is accompanied by a quarrel of 40 countries over how to levy fees on Silicon Valley companies. The greatest hope for an amicable outcome is the OECD-led forum, where 139 countries hope to agree on new tax rules this summer. According to Politico, a success would be the most important change in international architecture in a century.
G7 leaders hailed the global corporate tax agreement they hammered over as “unprecedented” and “historic.” The proposal, which is up for discussion at the G20 meeting in July, calls for a global corporate tax rate floor of 15% and extra taxes on the world’s most profitable companies.
The new rules should counteract some of the effects of what policymakers call “the race to the bottom” in corporate tax rates across the world. The EU and the US have borne the brunt of that trend as multinationals shift their profits to tax havens.
But the deal is not sitting well with advocates for poor countries, who say the tax rate floor needs to be higher to fairly spread the benefits of the proposed changes. This tax floor could decrease some competitiveness of developing countries, which are not tax havens but yet compete for Western FDI with lower CIT levels and tax-breaks.
So if discussions were contentious among the G7, expect considerably more drama when the proposal moves to the G20.
In early June 2021, the European Union reached its final offer to introduce a new regulation that will force large multinationals to recognize their activities as domestic. Ultimately, negotiators representing the European Parliament and EU governments agreed on a package that forces companies with total revenues in excess of EUR 750 million to publicly report the number of employees, net turnover, profits, corporate tax paid and the nature of their activities in each EU Member State.
While negotiations to reach an agreement on country-by-country reporting, European Economic Commissioner Paolo Gentiloni told journalists: “The fight against tax evasions, tax avoidance and aggressive tax planning is a priority for the commission and for me.” He made comments at the inauguration of a new EU-funded research body, the European Tax Observatory, to study taxes and suggest policies that deal better with tax evasion, tax avoidance and aggressive tax planning, according to the European Commission.
The center will be headed by the French economist Gabriel Zucman, known for his work on tax havens, and will be based at the Paris School of Economics. Gentiloni concluded: “It’s not enough to restore the balance, for the main winners of globalisation to pay more in tax, which at the end of the day is the only way for globalisation to be sustainable.”
Ireland opposed the law newly introduced. It just so happens that it was the only country to avoid a recession in 2020. It was no miracle. Ireland has been a tax haven of the European Union for years. The country applies a system of incentives to transfers of intangible assets on a scale that distorts its own national accounts.
“It shows time is over, time is over for tax fraud and tax avoidance we can simply not afford it any longer” said Sven Giegold, German MEP and longtime tax activist a few hours before signing the deal. “We need the money for investment, we need the money for rebalancing the budgets, we cannot afford it any longer”
Despite Ireland’s opposition, most countries – enough to enact changes to tax law – are supporters of the reform, who see it as an important step forward in tax transparency. Why? According to the think-thank Polish Economic Institute, EU member states lose EUR 170 billion per year due to EU tax havens.
Poland and other CEE countries are the ones being ripped off the most by this practice. This region fought fiercely for changes in EU tax law. For several years we have been calling for the introduction of more transparency and EU tax reform. 2021 is the moment where we can say: tax havens and multinationals we’re finally going after you.