What is the global tax reform we are facing?


Some island countries that were considered informal, low-tax tax havens for the past 40 to 50 years and others defined as “tax havens” in central Europe are now under close scrutiny.

According to reports from international institutions, the amount of tax revenue that would be stolen by companies via shell companies or subsidiaries established in these same tax havens varies between 30 and 120 billion dollars.

German Finance Minister Olaf Scholz said the business models of the companies in question give them a much better chance to avoid taxes.

In particular, serious effort has been devoted to eliminating tax evasion schemes such as Base Erosion and Profit Shifting (BEPS).

BEPS is used by the world’s leading internet platforms in the field of digitization and by the world’s leading e-commerce and e-export companies.

The G-7’s decision

Thanks to BEPS prevention, corporate taxes worldwide are expected to increase from 1.9% to 3.2%. This figure would rise to 4% if the United States gave its full support.

It is therefore an important step that ministers from the G-7 countries agreed on new global tax rules in London on June 5.

UK Finance Minister Rishi Sunak said the new tax system will follow the global digital age and large companies will pay taxes at the right rate and in the right regions.

If this new approach is adopted by the treasury and finance ministers of the G-20 countries, who will meet in Italy on July 9 and 10, a global consensus could be reached.

This new comprehensive approach to taxation, which was prepared under the mandate given to the Organization for Economic Co-operation and Development (OECD) by the G-20 in 2017 and can be considered as a “reform” in terms of world economy, consists of two pillars.

Two pillars of the reform

The first pillar is that the tax authorities of the countries have the possibility to tax the business activities of said global companies outside the country of their establishment.

This means higher taxation for companies that provide digital services like Google, Facebook, and Apple, as well as global e-commerce platforms and global technology-driven trusts.

Global multinational companies, which fall under the first pillar and do business in many countries around the world, will pay tax on 20% of their profit margin. They will do this if they operate with a profit margin of 10% or more in countries other than the country where the company is headquartered.

International institutions expect additional tax revenues of between $ 50 billion and $ 80 billion at this stage. If the United States gives support, $ 100 billion in additional tax revenue is expected.

The more the European Union is satisfied with this development, the more the United States is unhappy that its companies pay more taxes.

However, the second pillar of the deal, called “reform” of global taxation, appeals to the United States because it ends competition among countries that want to attract global companies to tax rates and tax cuts. ‘tax.

At this stage, the objective is to close the gap in the ratio between countries which do not levy any taxes or apply very low corporate tax rates and those which apply 20% up to 28%) and those which apply at 30% or more. This would be done by ensuring that all countries apply a minimum corporate tax rate of 15%.

However, French economists and the French government – among a few others – point out that the 15% tax is still too low. Indeed, economists consider the drop in the corporate tax rate from an average of 50% in major global economies in the mid-1980s to 22% today as small.

What does the future hold?

In the coming period, this situation could aggravate discussions on reducing the weight or share of direct taxes and increasing the share of indirect taxes in countries’ tax revenues, especially over the past 25 years.

Of course, new dimensions of the problem, such as imposing additional taxes on the fossil fuels that pollute the world, will come to the fore.

For now, all eyes are on the G-7 Leaders Summit and the G-20 Ministerial Summit.

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