Economy News

Global taxation: Who are the winners and losers?


The G20 Finance meeting in Venice will focus on the reform of global taxation of multinational corporations, with the aim of reducing state tax competition. In the short term, the big economies will win, while tax havens will suffer.

global taxation
Daniele Franco, Italy’s Economy and Finance Minister, speaks during a panel discussion at a meeting of G20 Finance Ministers and Central Bank Governors in Venice, Italy, Friday, July 9, 2021.

Those who won
The major economies are home to a large proportion of multinational corporations, and will therefore receive a substantial windfall from the new global taxation. A minimum tax rate of 15%, according to the OECD, would generate 150 billion euros in additional revenue each year.

France may earn nearly 6 billion euros per year from the minimum tax in the short term, Germany nearly 8 billion euros, and the United States nearly 15 billion euros, according to CAE, a government advisory organization.

Chinese companies will also benefit from the global taxation reform, as they will be able to continue to enjoy tax advantages due to exemptions, as will other countries. However, these amounts will decrease over time, if the low-tax countries increase their rates to approach the minimum rate.

However, there are still open negotiations over a multitude of tax exemptions that many countries are trying to retain.

Tax havens lose out in the short run
Tax havens and other countries with advantageous taxation, modestly called “investment hubs” by the OECD, will lose their attractiveness and revenues due to the reform.

“They understand that they do not have the ability to prevent an international agreement, and they are calculating that it is in their interest to cooperate,” says Nicholas Véron, an economist at the Peterson Institute and the Bruegel Institute.

Farid Toubal, an economist at Paris Dauphine University and an expert on the subject, confirms that these countries, which have been attracting empty shells for years, will suffer as a result of the reforms.

Some European countries are concerned
In the near future, European countries such as Ireland, which attracted Apple and Google with almost no taxation, Switzerland, Luxembourg or the Netherlands will also lose out.

“Beyond the impact on public finances, it is clear that the reform could affect the economies and employment of these countries, especially if multinationals relocate their profits and investments,” also emphasizes Ricardo Amaro, economist at Oxford Economics.

In 2018, approximately a third of U.S. multinationals’ profits in Europe were located in the Netherlands, Ireland and Luxembourg, which accounted for only 5% of their European turnover, according to him. The reform could also encourage them to raise their tax rates to the minimum effective rate, which would increase their long-term tax revenues.

Farid Toubal points out, however, that Ireland has also invested in digital infrastructure, education, and has become a recognized center for the pharmaceutical industry since the early 2000s.

He added, “Of course, the empty shells will leave, but the productive base will remain, since Ireland has other assets, speaks English and is part of the huge European market.”.

Emerging countries have promised exemptions
Oxfam, an NGO focused on corporate tax optimization, denounces the fact that the OECD agreement mainly benefits rich countries. The poorest countries would receive less than 3% of the additional revenue generated by a minimum rate of 15%, while they make up a third of the world’s population, says Oxfam.

Despite this, the agreement reached last Thursday has progressed compared with what was expected, allowing more small economies to share in the tax on profits. According to Farid Toubal, it will help reduce “the aggressive tax competition that several African states engage in” in order to attract multinational companies, such as large mining firms.

In addition, developing countries have received guarantees as part of the agreement that companies can continue to benefit from certain deductions when they produce in the country where they relocate.

For MetaNews.


Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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