“Multinationals will no longer be able to lodge their profits in tax havens”

2023-06-11 14:14:40

The cross : You tell, in your book Tax heavens. How we changed the course of history, behind the scenes of the international negotiations that you conducted within the framework of the Organization for Economic Co-operation and Development (OECD) in order to fight against the tax optimization of large companies. Are we really putting an end to tax havens?

Pascal Saint Amans : For business, yes. Multinationals will no longer be able to locate hundreds of billions of profits in small confetti in the middle of the Caribbean or the Pacific. We have created a global minimum tax of 15% on corporate profits which is bringing about real change.

Especially since it was designed in such a way that we do not need all countries to apply it for it to work. All it takes is a critical mass, since the new rule allows a third country to recover the share of tax that will not have been paid, up to a maximum of 15%, if a jurisdiction does not apply the minimum rate .

This critical mass, do we have it today?

P. S.-A. : We have it, since the European Union will apply the reform, which makes 27 countries. Added to this are Japan, Canada, Korea, the United Kingdom, and other G20 countries. The laws have been passed and will begin to apply from 1^is January 2024.

Certainly, the United States will not apply it, because Joe Biden failed to obtain a majority in the Senate. But Republican senators are beginning to see that other countries are going to tax American companies instead of the United States. And they are very upset because of that. This is proof that things are changing…

How did we get to this situation where companies began to massively evade tax money?

P. S.-A. : This comes from the fact that the international rules on corporate taxation were totally outdated. They were established in 1928. Since then, borders have been removed and multinationals have become major players in globalization.

Moreover, the nature of value creation has changed. It is no longer just in a product, but in its brand, in the know-how, in the intellectual property… All these factors have combined. And when the rules were no longer suitable, the money followed the gentle slope that led it to tax havens.

How much should this reform bring to the States?

P. S.-A. : There are roughly convergent figures which estimate that it is more than 200 billion additional euros per year. But there is more: without this reform, there was a risk that corporation tax would end up disappearing completely. The reform makes it possible to stop the haemorrhage that has been occurring for twenty years.

This tax optimization came mainly from a certain number of medium-sized countries…

P. S.-A. : Absolutely. In an open economy, countries that lacked the capacity to attract large investments due to the weakness of their market had to compensate with tax advantages. This is the case of Ireland, the Netherlands, Belgium, Switzerland and Singapore, which have benefited from this tax competition, made possible by globalisation.

What made it possible to change things was the financial crisis of 2008. It provoked a political reaction. The major States, gathered within the G20, representing more than 70% of the world economy, decided together that it was time to act. And when the big countries act together, the smaller ones are forced to align.

Between large countries, it was sometimes complicated when it was a question of how to distribute tax rights, or how to tax digital companies. States are cold monsters that defend their interests. But there has been a convergence of the big against the small.

In your book, you regularly mention the publications in the press and the reactions of public opinion. How important is that in influencing a highly technical negotiation like the one you conducted?

P. S.-A. : The reason why we were able to make so much progress is that there was political support at the highest level. After the financial crisis of 2008, we found ourselves faced with a budgetary crisis, a social crisis and a political crisis. In this context, tolerance for large corporations or the wealthy who managed to evade taxes was nil. But the fact that this was reflected in press campaigns, on the occasion of massive data leaks like the Panama Papers or the Lux Leaks, was important.

It is very difficult to negotiate between sovereign countries at the level of technocrats. Nothing advances if there are no instructions from politics. And to maintain the interest of politicians over time, this is only possible if the subject is of public interest. So yes, the fact that the subject regularly makes the headlines, that has an influence.

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The author

Enarque marked on the left, passed by the Ministry of the Economy, Pascal Saint-Amans, 54, was seconded for fifteen years to the OECD (Organization for Economic Co-operation and Development), headquartered in Paris. There he coordinated an ambitious international negotiation aimed at combating tax havens. Businesses benefited
holes in the legislation to house their profits. The reform, completed in 2021, should put an end to this practice.

About the

International corporate taxation is a dry subject. But thanks to Pascal Saint-Amans’ clarity of exposition, he becomes very political, and even geopolitical, with this detailed account of the negotiations he delivers in Tax heavens. How we changed the course of history (Threshold, 320 p., €22). From Washington to Barbados, we follow the author behind the scenes of great summits. And we see little by little the pieces of a vast jigsaw that have made this international agreement possible.