This time it's not a simple parade. It is on the table of the economic ministers and central bank governors meeting until Sunday in Venice for the G20 the global tax, the reform of world taxation on multinationals which aims to eliminate tax havens and to redistribute tax levy (and above all revenue) in a more equitable manner thanks to an agreement shared between OECD countries.
Despite the reluctance of some states - including Ireland, Estonia and Hungary - the green light from the G20 he Italian presidency seems to be already in the pocket after the general agreement reached a few weeks ago at the OECD headquarters and the previous go-ahead from the G7 finance ministers. But they still remain 9 countries to convince: 4 of them are European. “I am very confident that we will be able to agree on this important goal at the G20 in Venice. This way we will cut the legs off the insane race to the bottom on taxes and give our communities a financial footing,” he said in an interview with Repubblica, German Finance Minister Olaf Scholz.
After the go-ahead from the G20 countries, it will take a few months to convince those against it and to establish the details and technicalities of the new international legislation. The next crucial appointment is set for October, again at the OECD. A few days later (30 and 31 October 2021) a new summit of the G20 heads of state and government is scheduled.
GLOBAL TAX: HOW IT WORKS
The agreement on the global tax is based on two pillars. The first establishes the introduction of a global minimum tax of 15% on multinationals with revenues exceeding 750 million euros. It works like this: if a company pays taxes in a country where effective taxation is lower than 15%, the remaining percentage to reach this threshold will have to be paid in the country of residence, which for Hi-Tech multinationals in the vast majority of cases correspond to the United States. Let's take a practical example: multinational X pays taxes in country Y (a tax haven) which has an effective tax rate on profits of 6%. At this point, the 9% remaining to reach the global minimum threshold of 15% will have to be paid into the country where multinational X is based. From this measure one expects a total revenue of 150 billion of dollars a year.
The second pillar is a little more technical and concerns multinationals with revenues of over 20 billion dollars and an operating margin, ie the difference between production costs and revenues deriving from sales, greater than 10% of turnover. Under the terms of the agreement, a portion of the profits of these companies, equal to 20-30% of the profits exceeding 10%, will be taxed in the countries where those companies make sales, net of the registered office in any tax haven. Another practical example: Company X has an operating margin of 17%. On the basis of the established rules, Italy will have the possibility to tax 20% of that excess 7% with the rates established by its tax system. The purpose of this measure is to redistribute part of the tax revenue among the various countries in which the multinational operates. The estimates speak of a possible revenue of $100 billion the year.
There are also two conditions to consider: the first concerns the United States' request for abolish web taxes approved over the years by the various countries, when the global tax comes into force (probably in 2023). The second concerns the UK's request for an exemption the companies of the City from the application of the new rules, since they are already subject to an ad hoc regime.
GLOBAL TAX: THE NUMBERS OF AN ENDLESS DUMPING
Until recently, such an arrangement would have been unthinkable. The turning point came last March when the president of the United States, Joe Biden, and US Treasury Secretary Janet Yellen have begun talking about a global minimum tax (their proposal included a 21% rate) on the profits of multinational corporations. The impetus that came from overseas was decisive in reaching an initial agreement in principle first at the G7 in June and then at the OECD meeting on 1 July. The purpose, as mentioned, is to countering avoidance and so-called profit shifting, that is, the transfer of the profits of multinationals to countries that impose lower taxes.
To understand how serious the problem is, just think that 40% of the profits of the world's large multinationals are safe in tax havens, where taxes are much cheaper.
According to the estimates of the Fair Tax Foundation, in the last 10 years the six biggest big names in Silicon Valley – Facebook, Apple, Amazon, Netflix, Google and Microsoft – would have paid more than $96 billion in tax savings compared to what the actual financial ratios are. Against revenues of over 6 trillion, taxes paid from 2011 to 2020 amounted to 219 million, a figure that corresponds to 3,6% as a percentage. The negative record (or perhaps positive for Jeff Bezos) belongs to Amazon which, with revenues of 1,6 trillion dollars and profits of 60,4 billion, paid only 5,9 billion in income taxes in 10 years (9,8% of profits). How much would he have to pay? Almost double (10,7 billion).
Also Europe has its tax havens. Among them is Ireland which applies a tax of 12,5% on multinationals. It is no coincidence that giants such as have found a home in Dublin Apple, Google and Pfizer. Based on the calculations released during the 31st edition of the 2020 Finance Workshop organized by The European House-Ambrosetti, for Italy this tax dumping translates as follows: out of about 27 billion dollars of profits made in our country, Italy annually loses about 6,4 billion of tax revenue. Money going to countries like Ireland, Luxembourg and the Netherlands. But that's not the only damage. The effects can also be seen on investments from abroad: in Italy they are worth 19% of GDP (but the problems of attractiveness go beyond taxes, it must be said), in Ireland 311%.
GLOBAL TAX: THE OPPOSITE
130 out of 139 OECD countries have signed the July 1 agreement, states that represent 90% of world GDP. 9 are missing: Peru, Barbados, Saint Vincent and the Grenadines, Sri Lanka, Nigeria and Kenya. But most of all Ireland, Estonia and Hungary. Cyprus did not participate in the negotiations.
For the European Union the No. of 3 of its 27 member states could represent a problem, given that in matters of taxation to adopt directives and regulations, the rules require that there is unanimity. But optimism seems to dominate. “Even those few states that have not yet joined they won't be able to escape for long to this overwhelming dynamic. I have been fighting for this result for years. It is an unprecedented and historic step towards greater global tax justice. And it is a strong signal for multilateralism and global cooperation, which strengthens confidence in our tax systems”, Scholz reiterated to La Repubblica. In short, the line is clear: by hook or by crook, these countries will be forced to capitulate.
