The outgoing OECD tax chief, who has orchestrated the most sweeping corporate tax reforms for nearly a century, has warned that the United States and Europe risk reigniting trade wars and causing face hundreds of billions of dollars in lost revenue if they don’t implement last year’s global deal.
Some 136 countries have backed a two-pronged deal that aims to address public outrage at multinational corporations not paying their fair share of tax. But progress on both pillars of reform has stalled, despite OECD calculations that show governments could collect more than $150 billion in additional taxes a year from the world’s biggest corporations.
Pascal Saint-Amans, who has headed the Paris-based organization’s tax department for the past decade, said: “I see serious risks of unilateral measures, and therefore trade sanctions, at a time when countries allies, in a difficult political context, may not want to start trade wars over a tax issue.
One of the measures, which aims to force the world’s 100 biggest multinationals to declare their profits and pay more taxes in the countries where they do business, is unlikely to win enough support in the US Senate to be implemented before the deadline imposed by the OECD in mid-2023.
However, Saint-Amans said the United States will eventually sign up, or risk kicking out its Big Tech giants in a scenario where it faces a web of separate taxes on digital services from many countries.
“The alternative is so bad,” he said, adding that he expected these taxes to extend beyond Big Tech to multinationals in other sectors such as the pharmaceutical industry. .
The United States has in the past threatened to impose sanctions on European countries that have introduced digital services taxes.
The other part of last year’s agreement, which imposes a 15% floor on effective corporate tax rates affecting all multinationals with revenues above 750 million euros, has also stalled.
The United States tried to introduce it earlier this year but ignored important parts of the rules, while Brussels faced opposition from member states Poland and Hungary.
The EU has attempted to introduce the minimum tax reform into European law, but this requires unanimous approval from member states and Budapest continues to oppose it. Saint-Amans said the measure was “held hostage”.
“It seems that Hungary is seeking to release some EU funds which are blocked by the European Commission due to rule of law issues,” he said.
Many tax professionals doubt that the agreement will be incorporated into other national legal codes without the support of major jurisdictions such as the United States and major European economies.
Saint-Amans said implementation “was not losing momentum” and that elements would start to be legislated in Europe in “a few months”. Hungary’s refusal would not prevent the bloc’s largest member states from moving forward with the plan by introducing their own national legislation.
“If there is no deal, countries will move. They will act unilaterally, because they can. That is our legal and political assessment,” Saint-Amans said. Germany reported these months that she was ready to go it alone, if necessary.
He argued investors would support a broader tax base, saying the markets had sent a clear signal that former UK Prime Minister Liz Truss’ bid to turn Britain into a ‘Singapore-on-Thames’ at a low tax rate was “not the right thing to do”. .
The deal follows years of painstaking negotiations by Saint-Amans, who is leaving the OECD on Monday.
He originally planned to leave when the deal was struck last autumn, but stayed on to help new secretary-general Mathias Cormann, appointed last June, kick off the implementation work.
Saint-Amans came under fire from the Financial Transparency Coalition, a network of campaign groups, after it emerged he would be joining Brunswick’s advisers. Saint-Amans denied there was a “revolving door” between the OECD and the private sector, saying he was not joining a tax firm or working on behalf of clients with his future former employer.
“What’s the counterfactual – that I’m dying on the job and can’t do anything else?” he said.
The deal is the most sweeping tax reform since the League of Nations drew up its first model treaty to prevent double taxation in 1928. The OECD had previously estimated it would bring in an extra $150 billion a year in taxes multinationals, but he will soon publish an update of the estimates which, according to Saint-Amans, would show “much larger figures”.
Critics such as the lobby group Tax Justice Network have argued that the minimum tax rules discriminate against low-income countries, which have few large multinationals headquartered there.
Saint-Amans argued otherwise, saying the minimum tax would generate “very significant revenue” for developing countries because it would force them to end “wasteful” tax incentives to entice businesses to locate there.
A central concern of businesses and tax administrations is that the rules are fiendishly complicated. Auditor EY estimated that a company would need to source around 200 data points from subsidiaries around the world to determine whether more revenue was due under the global tax floor rules – a “tremendous amount of work “, according to the group’s tax policy chief, Chris. Blood.
OECD officials are working on administrative guidelines to simplify the implementation process, but have not produced estimates of the cost of business readiness.
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