The Amazon breach | The duty

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Negotiations to advance the ambitious global tax reform targeting multinationals continue this week at the Organization for Economic Co-operation and Development (OECD). Good luck!

Joe Biden’s impetus came to energize these international negotiations on the taxation of multinationals – digital giants in the lead – piloted for a long time by the OECD, which were due to end in 2020 before being put on hold by the United States. by Donald Trump. But this reform, which the G7 has just supported, faces a long winding path before its hypothetical large-scale adoption, then its implementation.

The reform adopted has two main pillars. The first part concerns a tax collection not according to physical presence, but according to the activity carried out in the country. The United States is targeting a hundred multinationals, big followers of tax optimization. The second suggests a minimum tax rate set at 15% in order to reduce tax competition between states and to minimize transfer strategies to low-tax countries.

But, from the first days, The Guardian highlighted an Amazon breach arising from the first pillar recognizing a right to tax at least 20% of profits exceeding a profit margin of 10% for large multinationals in countries where sales are made. The British newspaper estimated the web giant’s profit margin at 6.3% in 2020, below the preponderance of its online retail business. Unlike its Web and cloud services, on which the American giant can generate a margin of 30%. “If a tax avoidance giant like Amazon can get by without paying tax, this tax reform is a flop,” summed up Canadians for Tax Fairness.

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To this loophole that the OECD will have to plug with, in its sights, a segmentation approach likely to encourage, it is feared, a game of grouping of entities in order to lower profit margins, is added a tax threshold. minimum which, at 15%, does not convince. Being close to that of Ireland at 12.5%, it even attracted an initial favorable reaction from the components of the GAFA.

According to 2019 statistics from the OECD, 81 of the 111 countries surveyed, or nearly three quarters, applied a statutory tax rate above this minimum and 7 retained a rate of 15%. So 23, or 20%, were found under this target, of which 13 made up the world of famous tax havens at zero legal rate, where we find the Bahamas, Bermuda, Jersey, the Cayman Islands and the British Virgin Islands. .

But here we have to agree with Pascal Saint-Amans, director of the Center for Tax Policy and Administration of the OECD. “I think everyone understands that a deal is better than no deal. No agreement, it’s GAFA taxes, unilateral taxes, American retaliatory measures ”, we read in a text from Agence France-Presse (AFP).

The American Congress will have to be convinced first. Then in particular China, whose legal rate is 25% but which is increasing the reduced rates targeted for the purposes of economic development and encouraging research and innovation. Or the United Kingdom, yet with a statutory rate of 19.5%, but which would like its financial sector to be excluded from pillar 1 of the reform.

Developing countries

It will also be necessary to take into account all these emerging economies that do not define themselves as tax havens but rely on tax competition to attract businesses and direct investment, and convince them that this reform will not have the effect of ‘a diversion of these capital flows. The International Monetary Fund has already estimated international corporate tax transfers at US $ 600 billion per year.

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Without forgetting the regulatory constraints. If the reform is passed, countries will need to repeal tax incentives contained in their national laws and investment agreements to harmonize the effective tax rate and the global tax rate. While some tax incentives can be canceled unilaterally, through legislative change, others are subject to stabilization clauses contained in laws and contracts, which could prevent the full implementation of a minimum tax. global, says the International Institute for Sustainable Development.

Many things remain to be defined, including the harmonization of the tax base and the loss of sovereignty forcing the abandonment of national measures. The difference between the legal rate and the effective rate reminds us that the real tax burden is modulated at the rate of depreciation expenses, deductions and other tax credits, R&D incentives, intellectual property regimes, rules relating to controlled foreign companies, the deductibility of interest, the transfer pricing system or the various payroll taxes.

Negotiations continue this week at the OECD to find a consensus between the 139 countries involved, with Wednesday and Thursday scheduling a decisive meeting to try to fix the general contours of the reform. The moment of truth will be the meeting of G20 finance ministers in Venice on July 9 and 10, which will – or not – pave the way for a final deal by the end of the year, according to AFP.

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