France and UK pile pressure on global overhaul of international tax system

The French senate has approved plan to apply a 3 per cent charge on turnover of digital companies with revenues of more than €750m globally and €25m in France.

The UK also published today its own draft legislation for a 2 per cent digital sales tax, first flagged last October, from April 2020 if no international agreement on the issue is reached before then.

The corporate tax system is increasingly unfit for purpose in the digital era. The fact that companies can structure themselves so that they pay much of their tax in low-tax jurisdictions, regardless of where sales take place, is a particular problem.

Multinationals continue to move profits among their subsidiaries to minimise tax. For example, companies require subsidiaries in high-tax jurisdictions to license intellectual property rights from units located in places where little (or no) taxes are paid. The trick is even easier for digital companies and digital transactions. ICRICT Commissioner Gabriel Zucman estimates that 40 per cent of overseas profits made by multinationals are artificially transferred to tax havens.

Change is required and negotiations are ongoing at the OECD Inclusive Framework, a body of 129 member states to find a consensus solution to find a system to tax multinationals that is fit for the 21st century.

In this context, ICRICT supports the introduction of interim solutions by France and UK as they will put pressure on the ongoing negotiation process to reach a multilateral accord to overhaul the international tax system.

ICRICT Commissioner Jose Antonio Ocampo said:

“This reform is no longer a mere technical discussion, it is political and unless it happens we will see a proliferation of unilateral measures. Governments know this and must press for an overhaul of the international tax system to make multinational companies pay their fair share and give governments more financial resources.”

ICRICT Commissioner Wayne Swan said:

“The OECD Inclusive Framework is finally contemplating taxing multinationals as single businesses, apportioning profits between countries through formula and a global minimum tax, all policies ICRICT has been arguing for. Such a move beyond the arm’s length principle by relocating taxing rights, ensuring that countries where the actual economic activity occurs get their fair share and making sure that companies regardless of where they are physically located pay a minimum effective rate of tax globally will deliver a sustainable system fit for the future"