The global tax on multinationals is stalled by political reluctance in the US and the EU

2023 will not be the year that large multinationals pay more taxes. The new fiscal framework that the international community is preparing is delayed and the Organization for Cooperation and Development (OECD), which coordinates the negotiations with the G-20 and which had marked the coming year to achieve this goal, has just agreed on a “more realistic” timetable pointing to 2024. The delay is due to the fact that some of the Gordian knots that are blocking the talks, in which more than 130 countries are participating, have not yet been dissolved. The pitfalls come from both sides of the Atlantic. And they are not just technicians.

Both in the United States, headquarters of the largest multinationals in the world, and in the European Union, where there are countries that exercise fierce tax competition, there are elements that make it difficult to approve the new rules. The current ones, in force for a century, have become old. They are based on a corporate world that disappears. They are based on the physical presence in a territory and that concept, with the advance of globalization and the digital revolution, no longer works.

The objective of the new framework is twofold: to limit the race to the bottom in corporate tax, setting a minimum effective rate of 15%, and to force large multinationals to pay a fair portion of taxes also in those countries where they do not have a presence physical, but they do do business. Simply put, that Amazon or Facebook obtain taxes in Spain for what they sell and, therefore, enter Spain.

“We deliberately set a very ambitious timetable to keep up the pressure, and we think that has helped keep the momentum going,” OECD Secretary-General Mathias Cormann said in May. He then warned that there were “ongoing difficult discussions” and that practical implementation was “most likely” to come “from 2024″, an assumption confirmed in mid-July in a body report delivered to finance ministers and governors of the G-20 central banks.

obstacles

In the EU, everything was planned so that the minimum rate would be approved during the first half of this year. France, which presided over the EU Council from January to June, put all its efforts into moving it forward, but hit two obstacles in succession. First, it ran into Poland’s veto: Warsaw pointed out that it was not fair to approve this part of the international tax reform without advancing the other leg in parallel. The argument and the veto dissolved in June, a few weeks after the European Commission gave the green light to its recovery plan. The unanimity required to approve fiscal rules in the EU seemed to have been achieved, but then Hungary – one of the countries that put the most buts last October in global negotiations and has the lowest type of companies in the EU – raised its arm to stop the new regulation. Now it is the turn of the Czech presidency to try to push the rule forward, something that appears among its priorities for this semester.

Meanwhile, several countries have incorporated a corporate tax floor into their national legislation, such as Spain or the US, which has just given the green light in the Inflation Reduction Law. The OECD calculates that world revenues would grow by more than 100,000 euros if a global agreement on a minimum rate of 15% were reached, but if it failed, unilateral solutions could be adopted.

“Contrary to general opinion, an effective minimum tax does not require a global pact,” says a study published in 2021 by the EU Fiscal Observatory, led by economist Gabriel Zucman. “If an international agreement on an ambitious minimum rate is not achieved, it is possible that a single country (or a group of countries) will unilaterally decide to adopt a high minimum corporate tax”, which would put pressure on other states to do the same, he adds. the. The same director of the OECD Center for Fiscal Policy and Administration, Pascal Saint-Amans, recently told the Financial Times: “When you seriously think about pillar two [el tipo mínimo del 15%] you realize it’s going to happen anyway.”

More blisters raises the other leg of the agreement, which would need a global consensus. “These are complex and highly technical negotiations on some new concepts that fundamentally reform international tax regimes,” Cormann admitted in July. The scheme that is to be approved would affect the largest corporations in the world, with a turnover of more than 20,000 million and more than 10% profitability, which will have to pay a quarter of the profits that exceed that 10% in the countries where they operate, although not are physically in the territory. This will allow a fairer redistribution of 125,000 million.

This mechanism initially affected the big technology companies. That is why it was named Google rate Y it collided head-on with the US, a mecca for the main digital multinationals. The tension grew during the term of Donald Trump and it was the Administration of Joe Biden, gripped by the high bill of the covid and surrounded by the multitude of voices that demanded greater fiscal justice —even the IMF recommended raising taxes on companies with excessive profits —, who revived the talks. However, another setback could soon come: November’s midterm legislative elections, in which Democrats could lose a majority in the House of Representatives and in the Senate.

In addition, European countries such as Spain that have a digital tax in force have committed to the US – which demands its elimination – to withdraw them by the end of 2023 or as soon as the multilateral solution enters into force. Government sources assure that there has been no change in this regard despite the delays in the global agreement.

additional income

A year’s delay may seem like a minor matter for the reform of a structure that has been in place for a century. But the truth is that the work of the OECD and the G-20 had already been underway for eight years when last year it was announced with great fanfare that a “historic agreement” had been reached, at a time when public coffers they needed additional income to pay the costs derived from covid. Now, it is the energy crisis that stresses the national accounts.

The data speaks for itself: Governments lose between 100,000 and 240,000 million dollars a year due to tax avoidance by large companies, equivalent to between 4% and 10% of global income from corporate income tax, according to the OECD. The rise of globalization and the rise of an entire industry specializing in designing schemes to reduce tax payments have aggravated the problem in recent years, but none of this would be possible without tax havens and territories with aggressive taxation —the body The independent Tax Justice Network estimates that multinationals siphon off $1.19 trillion every year there—some of it in the very heart of Europe. Its mere existence also has another collateral effect: it has exacerbated tax competition between states, plummeting the nominal corporate tax rate, which in Europe it has gone from an average of 50% in 1985 to 21% in 2020.

Spain has not been spared this domino effect either, where corporate tax has become a Gruyere cheese, full of exemptions and deductions, which collects half what it did 15 years ago and whose nominal rate has fallen by more than seven points. In 2019, the latest data available, the 124 largest Spanish multinationals reduced their global taxation to 16.7% of their profits, and 23 of them only paid 2.6%.

“We will continue to work as quickly as possible to complete this project, but we will also use as much time as it takes to get the standards right,” Cormann said in July. “These rules will determine our international tax regimes for decades to come. It is important that they are suitable”.