Facing tax evasion by international companies

Negotiators from 131 countries have agreed to reconsider taxing the world’s largest multinational corporations. It is an attempt to thwart complex international evasion plans that cost governments billions in revenue.

Globalization and the growing digital economy are big plans to better deal with the world by making it easier to move profits from one jurisdiction to another. The agreement reached last week during global talks in Paris is set to be discussed between G20 finance ministers in Venice on Friday and Saturday.

The key feature of the complex package is that the global minimum corporate tax rate proposed by US President Joe Biden is at least 15%.

Although the tax contract is complicated in details, the idea behind the minimum taxes is simple: if a multinational company avoids taxes abroad, it must pay the minimum at home.

This is why it is recommended and how it works.

Issue: Line races and “down betting”

Most countries tax only the domestic business income of their multinationals, assuming that the profits of their foreign subsidiaries are taxed where they earn it.

But in today’s economy, profits can easily cross borders. Profits often come from intangible assets such as trademarks, copyright and patents. It is easy to keep these taxes to a minimum – and some jurisdictions are willing to offer reduced or zero taxes to attract foreign investment and income, even if companies do not trade there.

As a result, corporate tax rates have fallen in recent years, the US Treasury secretary, Janet Yellen an event “race to the bottom,” he called out.

From 1985 to 2018, the global average legal corporate tax rate fell from 49% to 24%. The U.S. has seven lower tax jurisdictions: Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland. Half of the companies registered in foreign earnings. The Organization for Economic Co-operation and Development estimates that the cost of tax evasion could range from $ 100 billion to $ 240 billion, or between 4% and 10% of global corporate tax revenue.

This is money that governments can use when they see deficits increase as a result of emergency relief spending due to the epidemic.

Solution: Global Minimum Tax

The purpose of these negotiations is to establish minimum corporate tax rates by setting states’ minimums for non-taxable foreign income. In other words, if Company X, which is headquartered in Country Y, does not pay any or all of its profits tax in Country Z, Country Y will tax those profits at the minimum rate at home.

This eliminates the reason for using the tax haven, or creates one. Biden proposed minimum of 15% of the global negotiations, although it may be higher.

Another problem: taxing ‘digital’ companies

Another aspect that attracts attention is what to do with for-profit companies in countries where there is no physical balance. This can be done through digital advertising or online retail. France-led countries have begun to impose unilateral “digital” taxes on major US technology companies such as Google, Amazon and Facebook. The United States calls for these unfair trade practices and threatens to retaliate with import duties.

Solution: Assign tax rights

Biden’s proposal focuses on the 100 largest and most profitable multinational companies, whether they operate in any type of business, digital or not. Countries can claim the right to tax a portion of their profits – up to 20% of corporate profits above the 10% profit margin, with the support of seven rich Democrats. Governments have unilaterally withdrawn their lines and the United States should resolve trade conflicts

Pitton’s plans

The agreement, reached by the Organization for Economic Co-operation and Development (OECD) in talks last week, plays a key role in Python’s drive to make changes that will transform the tax system and increase returns on investment in infrastructure and cleaner infrastructure, he said. Increase energy. . Under the Trump administration, the United States has already taxed foreign profits. But Biden wants Trump to double the epoch-making rate to almost 21%, and that rate should be set country-wise so that tax havens can be targeted. The president wants to make it more difficult for American companies to merge with foreign companies and avoid US taxes, which is called reversal.

All of these changes must be approved by the US Congress, with the Democratic leader holding a small majority. Biden wanted to make diplomatic gains in the OECD negotiations so that other countries would impose some kind of minimum tax to prevent companies from avoiding tax debt.

What’s next?

As 20 countries of the Twenty Group are involved in signing the OECD agreement, the agreement reached in the OECD is likely to be approved at the meeting of Finance Ministers. The OECD will require additional technical work before the G-20 can give its final approval at a summit of state and government leaders in Rome on October 30-31. And then implemented at the national level.

Global minimum tax is voluntary. So countries should introduce it in their national tax laws on their own initiative. According to Gabriel Jugman, professor of economics at the University of California, Berkeley, who has written extensively on tax havens, the minimum tax still applies even if some countries do not sign it. “உண்மை என்னவென்றால்: சில நாடுகள் குறைந்தபட்ச வரியை அறிமுகப்படுத்த மறுத்தால், மற்ற நாடுகள் அவர்கள் வசூலிக்க மறுக்கும் வரிகளை வசூலிக்கும்” என்று அவர் ட்விட்டரில் ஒரு ட்வீட்டில் தெரிவித்தார்.

If states propose to tax non-physical profits, for example through online business, states must sign a written international agreement.

The main hurdle would be congressional approval. Biden necessary to meet global minimum tax plans face opposition from Republicans, the Democratic majority leader is only the lowest. The rejection of the United States, the world’s largest economy and home to many large multinational corporations, could seriously undermine the global agreement. All parts of the tax treaty require two-thirds of the US Senate votes. எவ்வாறாயினும், அத்தகைய பாஸ் அமெரிக்க தொழில்நுட்ப நிறுவனங்களுக்கு கடுமையான தேசிய டிஜிட்டல் வரிகளிலிருந்து விலக்கு அளிக்கும் என்று பிடென் வாதிடலாம், இது உலகளாவிய தீர்வுக்கு ஆதரவாக ரத்து செய்யப்பட வேண்டும் – இது இரட்டை முறையீட்டைக் கொண்டிருக்கக்கூடும்.

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AP Business Writer Josh Fog Washington, D.C.