Global tax deadlock must end in coming days, Le Maire says
Countries must resolve disagreements in the coming days over details of new global rules to share tax revenues from the world’s biggest companies and set a minimum rate, or the talks could founder, French Finance Minister Bruno Le Maire said.
Raising the alarm at the prospect that years of negotiations could miss a vital window of opportunity at a meeting Friday of the 140 countries involved, the minister outlined his hopes for a compromise in a briefing with reporters on Tuesday.
“A definitive agreement on tax in the 21st century is within reach and it is now or never,” Le Maire said. “Either we get an agreement in the coming days or it will be very difficult to recreate a political dynamic for a deal with all the technical parameters.”
More than 130 countries in the OECD-led discussions approved a preliminary agreement in July, but others refused to sign as the plans left gaps on key parameters that will determine how much governments and multinationals win or lose.
The talks Friday aim to close differences ahead of a meeting of Group of 20 finance ministers next week and heads of state in Rome at the end of October. The OECD has warned failure would lead to a cocktail of unilateral digital levies and trade and tax disputes that could strip more than 1% off global economic output annually.
The negotiations are split into two separate streams. The first, known as Pillar One, aims to reallocate some tax revenue from where multinationals book profits to where they have sales, while Pillar Two seeks to create a global minimum corporate rate.
The deepest difficulties are on Pillar Two as the minimum tax rules will hit economic models of some states, Le Maire said. While he said there is a growing compromise on a 15% rate, there is disagreement on how to exempt some activities from new rules.
To allow states to continue attracting investment in real economic activity, negotiators are working on how to make deductions from the calculation of minimum tax. Le Maire said there is a proposal to reduce the amount subject to minimum tax by 7.5% of tangible assets and by 10% of payroll, with a 10-year transition period to bring the carve-out rate to 5%.
France will make proposals for those carve-outs to be large enough and reduced at a pace that limits the hit for countries with low tax models, like Poland, Le Maire said.
There is also a discussion with emerging countries including China about how to deal with large companies with big revenues but only subsidiaries abroad, he added.
On Pillar One, which is often referred to as digital taxation, states have still not decided how much profit should be shared for taxation after the July statement set a range of 20% to 30% of profits above a 10% margin.
Le Maire said countries including Brazil, Turkey and India want 30%, while those where companies are typically headquartered, such as the U.S., want the lowest possible rate. France is still proposing a compromise at 25%.
“What is at stake is a tax revolution that can end three decades of tax optimization and three decades of industrial off-shoring for which France has paid the price,” Le Maire said.
©2021 Bloomberg L.P.
The Luxembourg Times has a new mobile app, download here! Get the Luxembourg Times delivered to your inbox twice a day. Sign up for your free newsletters here.