ICRICT calls the G7 finance ministers to support move to more equitable international tax system
For immediate release
16 July 2019
The focus is on the French government on the eve of this meeting of the group of the seven more industrialized (G7) finance ministers. France assured, that under its leadership this year, the G7 would “fight inequality through regulated, fairer and more equitable globalization”. The reduction in taxation of corporate income facilitated by tax avoidance by multinationals has fueled inequality across the world.
To tackle tax avoidance by digital companies, the French government last week passed legislation to introduce a digital sales tax, effective from Autumn this year. Many of the multinationals subject to this new tax will be US multinationals including Google, Facebook and Apple.
The decision triggered the US government announcement to pursue an investigation into whether France’s tech tax amounted to an unfair trade practice that could be punishable with retaliatory tariffs. But France is not an isolated case. Public anger, exasperated by the austerity programs that have been in place since the 2008 financial crisis, has pushed governments all over the world to consider solutions to increase their resources. The UK also detailed plans last week to impose a similar tax, of 2 percent, on tech giants.
These unilateral moves have been taken against the backdrop of ongoing negotiations at the OECD Inclusive Framework, a group of 131 countries gathered within the Organisation for Economic Co-operation and Development (OECD) which could and should result in an overhaul of the way multinationals are taxed.
However, the pressure to keep the status quo by the countries that benefit from the current system is high and in this context, ICRICT (the Independent Commission for the Reform of International Corporate Taxation) supports the introduction of interim solutions by France and UK as this will put pressure on the ongoing negotiation process to reach a multilateral accord to overhaul the international tax system.
Under the proposals being negotiated, global profits of multinationals could be allocated through a formula, making the system more simple and reducing the opportunities for tax avoidance.
A global minimum tax is also being discussed, something that would mitigate tax competition and the race to the bottom.
The subject will come up again when the G7 finance ministers gather in Chantilly, France on July 17 and 18.
The solution we have advocated within ICRICT is a global formula that would ensure that multinationals’ global profits - and hence the associated taxes - could be apportioned between countries according to objective factors. We insist on the fact that those should include not just sales, but also employment (at headcount, rather than at payroll level) to truly benefit low-income countries.
ICRICT also supports the proposal for a global introduction of a minimum corporate tax, which has been put forward by Germany and France. Any multinational that book its profits in a tax haven could therefore be taxed in its home country, up to this minimum rate. This would reduce its interest in transferring its profits to tax havens and put a brake to the race to the bottom.
Of course, the countries that sign up to do so would give up the right to offer tax incentives. This is a key issue for developing countries. But they also stand to benefit from this decision. A global minimum tax could deliver precious revenue to these countries, which are more dependent on corporate taxes than developed ones. However, since a minimum tax would benefits first and foremost richer countries which are home to multinationals, developing countries should therefore accept it only if developed countries agree to a meaningful reallocation of how the profits of multinationals – and associated taxes — are split in the first place.