Wednesday, 20 October, 2021

France would gain from a reform of global taxation


The tax reform negotiated within the OECD would not cause France to lose tax revenue overall, according to a report from the Economic Analysis Council. But the think tank above all supports the creation of a minimum tax rate at the global level. French gains would then be very significant.

The international tax reform developed within the OECD will not cut the revenues of the State budget.

Bercy can remain calm. The international tax reform underway within the Organization for Economic Co-operation and Development (OECD) would not cut revenue from the state budget. On the contrary. Although the contours of the future international tax framework remain to be defined in the coming months, the Economic Analysis Council (CAE) has carried out a first impact study.

To give an idea of ​​the foreseeable consequences in terms of corporate taxes, this think tank attached to Matignon developed five scenarios and quantified their impact for six of the forty countries reviewed (France, Germany, United States, Ireland, China and India). In order to assess the tax losses linked to the optimization of multinationals, the ACE takes into account the existence of around 70 tax havens, including Ireland, the Netherlands, Luxembourg and Switzerland, which deprive the French state of 4.6 billion euros in tax revenue each year. Hence the interest in reviewing the rules under the aegis of the OECD.

According to the five scenarios selected, all countries (except those considered as tax havens) would win and would recover a little more taxes. What the OECD has always said to promote its reform. Nonetheless, the revenue surplus would vary depending on the assumptions made.

In a first scenario, the laws concerning the abuse of treaty shopping – multinationals use loopholes in tax treaties to locate their profits in countries where taxation is most advantageous to them – are reinforced. The ACE assumes that all countries have anti-abuse laws. The result would be an increase in corporate tax revenues of 21% in France, 11% in Germany and just under 10% in the United States. In contrast, Ireland would see its revenues collapse by 46%.

Ireland losing

Another scenario is more directly linked to the OECD project of a different distribution of the rights to tax the profits of multinationals among the countries where they operate through the Internet. It is pillar 1 of the reform of the international organization. The CAE assumes that a company’s normal profitability is at a 12% margin. Beyond that, these are what the OECD calls “residual profits”. In the example used, these residual profits represent one third of the consolidated profit. The CAE assumes that 20% of these residual profits would be taxed by the destination countries in proportion to sales. Only a fifteenth of the overall profit would thus be redistributed. Suffice to say little. And it shows in terms of impact.

In this case, France would gain slightly since it would see its tax revenue rise by 0.1% while Germany would see a slight erosion (-0.1%). The results would be roughly similar for the other countries studied. Clearly, no upheaval in tax revenues would be expected from pillar 1 of the OECD.

A more attractive minimum rate

Pillar 2, on the other hand, would have more significant consequences. Its purpose is to establish a global minimum tax rate for multinationals. A project supported by the French Finance Minister, Bruno Le Maire, and his German counterpart, Olaf Scholz. “This minimum tax would reduce by half the tax losses linked to the optimization strategies of multinationals”, indicates Mathieu Parenti, one of the authors of the study. The CAE assumes a minimum rate of 15%. Producer countries would then tax the profits transferred to tax havens at a rate that corresponds to the difference between this minimum rate of 15% and that of the tax haven.

Read also:

Minimum tax reduces tax competition

In this case, France would see its tax revenues increase by 9.4%, or 8 billion euros. Germany would recover 5.7% more taxes. The six countries studied would win except Ireland which would lose more than 20% of its income from taxes. On the other hand, if the Irish government adjusted its fiscal policy and fixed its tax rate at 15%, the country would see a surge of nearly 60% of its tax revenues. If all tax havens were adjusted to this minimum rate, France would only recover 4 billion in additional tax revenue.

Keep it simple

For the president of the CAE, Philippe Martin, “The process underway at the OECD should be more ambitious”. There is no doubt that the introduction of a global minimum effective corporate tax rate must be, in his opinion, the priority of the negotiations at the OECD. The idea of ​​introducing a distinction between normal and residual profits, on the other hand, does not meet with the approval of the Council. This greatly complicates the system while “Simplicity should be an important feature of international tax rules”.

The tax reform negotiated within the OECD would not cause France to lose tax revenue overall, according to a report from the Economic Analysis Council. But the think tank above all supports the creation of a minimum tax rate at the global level. French gains would then be very significant.

The international tax reform developed within the OECD will not cut the revenues of the State budget.

Bercy can remain calm. The international tax reform underway within the Organization for Economic Co-operation and Development (OECD) would not cut revenue from the state budget. On the contrary. Although the contours of the future international tax framework remain to be defined in the coming months, the Economic Analysis Council (CAE) has carried out a first impact study.

To give an idea of ​​the foreseeable consequences in terms of corporate taxes, this think tank attached to Matignon developed five scenarios and quantified their impact for six of the forty countries reviewed (France, Germany, United States, Ireland, China and India). In order to assess the tax losses linked to the optimization of multinationals, the ACE takes into account the existence of around 70 tax havens, including Ireland, the Netherlands, Luxembourg and Switzerland, which deprive the French state of 4.6 billion euros in tax revenue each year. Hence the interest in reviewing the rules under the aegis of the OECD.

According to the five scenarios selected, all countries (except those considered as tax havens) would win and would recover a little more taxes. What the OECD has always said to promote its reform. Nonetheless, the revenue surplus would vary depending on the assumptions made.

In a first scenario, the laws concerning the abuse of treaty shopping – multinationals use loopholes in tax treaties to locate their profits in countries where taxation is most advantageous to them – are reinforced. The ACE assumes that all countries have anti-abuse laws. The result would be an increase in corporate tax revenues of 21% in France, 11% in Germany and just under 10% in the United States. In contrast, Ireland would see its revenues collapse by 46%.

Ireland losing

Another scenario is more directly linked to the OECD project of a different distribution of the rights to tax the profits of multinationals among the countries where they operate through the Internet. It is pillar 1 of the reform of the international organization. The CAE assumes that a company’s normal profitability is at a 12% margin. Beyond that, these are what the OECD calls “residual profits”. In the example used, these residual profits represent one third of the consolidated profit. The CAE assumes that 20% of these residual profits would be taxed by the destination countries in proportion to sales. Only a fifteenth of the overall profit would thus be redistributed. Suffice to say little. And it shows in terms of impact.

In this case, France would gain slightly since it would see its tax revenue rise by 0.1% while Germany would see a slight erosion (-0.1%). The results would be roughly similar for the other countries studied. Clearly, no upheaval in tax revenues would be expected from pillar 1 of the OECD.

A more attractive minimum rate

Pillar 2, on the other hand, would have more significant consequences. Its purpose is to establish a global minimum tax rate for multinationals. A project supported by the French Finance Minister, Bruno Le Maire, and his German counterpart, Olaf Scholz. “This minimum tax would reduce by half the tax losses linked to the optimization strategies of multinationals”, indicates Mathieu Parenti, one of the authors of the study. The CAE assumes a minimum rate of 15%. Producer countries would then tax the profits transferred to tax havens at a rate that corresponds to the difference between this minimum rate of 15% and that of the tax haven.

Read also:

Minimum tax reduces tax competition

In this case, France would see its tax revenues increase by 9.4%, or 8 billion euros. Germany would recover 5.7% more taxes. The six countries studied would win except Ireland which would lose more than 20% of its income from taxes. On the other hand, if the Irish government adjusted its fiscal policy and fixed its tax rate at 15%, the country would see a surge of nearly 60% of its tax revenues. If all tax havens were adjusted to this minimum rate, France would only recover 4 billion in additional tax revenue.

Keep it simple

For the president of the CAE, Philippe Martin, “The process underway at the OECD should be more ambitious”. There is no doubt that the introduction of a global minimum effective corporate tax rate must be, in his opinion, the priority of the negotiations at the OECD. The idea of ​​introducing a distinction between normal and residual profits, on the other hand, does not meet with the approval of the Council. This greatly complicates the system while “Simplicity should be an important feature of international tax rules”.