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Understanding Global Business Tax Reform



► How could the reform see the light of day?

This global reform of corporate taxation is being prepared within a forum hosted by the Organization for Economic Co-operation and Development (OECD) headquartered in Paris. This forum is called “Inclusive framework”. He has been discussing for more than ten years and tries to come to define, by consensus, some common rules.

→ READ. Global corporate tax: the G7 agrees on a rate of at least 15%

To date 138 states participate in this forum. Representatives of businesses, unions, non-governmental organizations, etc. are also invited to speak. It has resulted in a reform project based on two pillars. To enter into force, the reform must achieve consensus. It must first be approved by the G20, which was the initiator of the reform.

G20 finance ministers are scheduled to meet on July 9-10 in Venice to review the project. This deadline could be the essential moment. But before that, the reform is discussed by the G7 finance ministers, meeting in London on June 4 and 5. It will also be on the menu at the G7 Heads of State Summit, June 11-13, in the UK. An agreement during these two meetings will already be an important step.

If the G20 gives its approval, the OECD will transcribe the new rules into an international convention. The countries of the inclusive framework have committed to adhere to it. It will take more than a year for the new rules to take effect.

► What does the first pillar propose, which concerns the rights to be taxed?

The first pillar aims to counter the practices of digital giants who do not have a physical presence in each country where they operate. They can report their profits in countries with low tax rates.

The reform provides that companies will now pay where they make a profit, and therefore where they sell, rather than in the country where they have their offices and factories, as is the case today. Clearly, Google will have to pay in France an amount corresponding to the advertisements sold to French customers. The company will no longer be able to report these profits as having been made in Ireland, where its offices are and where the order is placed.

The reform should apply to all companies which sell to end consumers (thus excluding subcontractors). It could therefore concern large French groups, in particular in the luxury sector, and not just digital companies.

However, there are still many unanswered questions: from what turnover threshold will a company be affected? Beyond what rate of profitability will the rights to be taxed be reallocated? We can expect a tough battle between states, each attempting to protect its businesses and tax revenues.

► What does the second pillar propose, which concerns a global minimum tax?

The second pillar aims to end the race for the lowest tax bidder. It plans to determine a global minimum tax threshold for large companies. If one pays less than this threshold in a country where it has a subsidiary, the country in which it has its head office may claim the difference between what has been paid and the minimum threshold.

To be clearer, if the minimum threshold is set at 15%, the United States may ask Apple to pay 2.5% on the activity of its Irish subsidiary: in this country, in fact, Apple is taxed at 12%. , 5%, like all companies. Ireland will therefore have an interest in increasing its rate up to 15%. This measure makes it possible to fight against tax havens.

The minimum rate remains to be determined. In a first version, it was 12.5%. The United States proposed 21%, then 15%. This is the level that is most likely to be chosen. It also remains to decide what will be the calculation method and the threshold from which a company will be concerned.

The discussion is also very tense because what is at stake are the resources of each country. Joe Biden’s United States supports reform. In addition, the pandemic is causing states to seek additional resources. The reform, depending on the rate chosen for pillar 2, could bring them an additional $ 100 billion to $ 150 billion. But pillar 1 will vary the way they are distributed among them.

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