The world’s largest multinational corporations would see their total tax burden nearly double if a minimum corporate tax of 15% was applied. That’s one of the conclusions of a report from investment bank Morgan Stanley, which analyzes the potential impact of the recent G7 agreement to impose higher corporate taxes. The consensus reached by the seven countries – the United States, Canada, Germany, the United Kingdom, France, Italy and Japan – is to establish a minimum tax of “at least 15%” and a system for the largest groups to pay taxes wherever they make a profit even if they do not have a physical presence in the region.
The investment bank report estimates that about 400 companies that currently pay an effective average corporate tax rate of 8% could be subject to the new 15% threshold, which is intended to stem the downward tax race that has affected that tax three decades ago. And reduce the collection of states. The most affected multinational companies will be those operating in the Internet sectors, marketing direct and hardware. The study notes that “theoretically, a minimum rate of 15% would roughly double the total tax burden for this group, without taking into account other variables, exemptions, etc.” From a regional point of view, the groups most exposed will be those in the United States, the Cayman Islands, Canada, Bermuda, Taiwan and Japan.
However, the entity clarifies that many technical details of the new international framework and its scope remain unknown. “There are a number of factors that could determine the final outcome,” says the report, which attempts to estimate the potential impact of the reform in the future on the basis of the information available. While most of the press attention is focused on the rate and the way the tax base is set [cantidad sobre la que se tributa] It is perhaps the most important component of the equation,” he adds.
In early July, the G20 nations will gather in Venice for a meeting seen as key to achieving a broader consensus. At least political. In October, another summit of the bloc will be held, the date the Organization for Economic Co-operation and Development (OECD) considers most realistic for achieving the agreement. This body, which agreed with the G-20 years ago to work on reforming the international tax system in the face of the challenge of digitalization and globalization, has long been trying to agree on more than 130 countries on financial rules.
of the pillars
The G-7 agreement, in line with the pillars of the comprehensive OECD and G20 framework on BEPS (Erosion of the Taxable Base and Profit Shifting), also provides a blueprint for multinational corporations to pay taxes wherever they generate benefits despite their physical absence in the territory It is the element around which the current international tax system revolves and which has come face-to-face with an increasingly digital and globalized world. The seven proposed that states tax groups that operate in their territories and have a profit margin greater than 10%, paying at least 20% of the portion that exceeds that margin. The United States had previously proposed that the world’s 100 largest multinational corporations come under this umbrella.
According to a Morgan Stanley report, this formula will cover a wider range of sectors, and will particularly affect companies operating in low-tax countries. Pharmaceutical technology and health activities will suffer the largest increase in the actual rate they pay. From an aggregation point of view, the largest impacts will be the United States (48%), France (8%), Germany (7%), and Japan (7%).
The Organization for Economic Co-operation and Development calculated – in this case taking into account a lower rate of 12.5% - that both pillars could increase corporate tax revenues worldwide by $50-80 billion annually. Countries with low nominal tax rates will be hardest hit. These include countries like Ireland, which has become the back door for large multinationals to shift profits to low-tax jurisdictions and has a statutory rate of 12.5%, lower than the 15% minimum proposed by the Group of Seven industrialized nations. According to a recent report by the EU Tax Observatory, the EU alone will raise an additional 48 billion in 2021 at a rate of 15%.
The investment bank’s report notes that “while the political will to reach a deal by July appears clear, these are complex issues and a deferred deal (perhaps in October or later) appears to be more realistic.” It points to several challenges: from technical details about the definition of the tax base for the tax to the scope of actions, as well as political support and the potential for some countries to lose collection. Time will tell.