A relatively recent study conducted by the French Council of Economic Analysis suggested that a global minimum tax rate for corporations would be beneficial. This came from the organization’s analysis of the OECD’s (Organisation for Economic Co-operation and Development) tax proposal.
What It Examined
The French Council of Economic Analysis serves as an advisor for the French government. It explored the pillar one and two proposals from the OECD. Those pillar proposals are part of the OECD’s framework for base erosion and profit shifting, known as BEPS. The council’s goal was to determine which of the pillars would result in the most revenue raised.
According to the analysis, France alone faces annual tax revenue losses totaling £5 billion from tax avoidance. This conservative estimate only accounts for tax avoidance in tax havens where multinational firms are located.
Additionally, the organization developed a model that predicts changes associated with the various reforms that the OECD is discussing. Specifically, the model predicts changes to collected tax revenue amounts and the relative attractiveness of various countries.
The models and simulations found that pillar one has minimal impact while pillar two does have an impact. Pillar one focuses on reforms that create a profit splitting rule that would ensure partial profit reallocation at destination markets. This pillar would have a negligible tax revenue impact and just a modest positive effect on most non-tax haven jurisdictions’ attractiveness for business.
That modest positive impact was 0.3 percent for both Germany and France. Each of those countries would have a rise of 1.4 percent if 30 percent of profits in destination countries were taxed. The current method of only fractions of profits taxed within production countries means that the high statutory tax rate in Germany and France has a smaller impact on where multinational companies locate. The tax revenue analysis indicated France’s would increase by 0.1 percent and Germany’s would decrease by 0.1 percent.
The Second Pillar’s Importance
The second pillar includes a minimum effective tax rate, and this is the portion of the OECD’s proposal that the simulations indicate would have a positive impact. The models indicate that this would effectively reduce profit shifting while also creating substantial gains for tax revenues. It would have minimal effects on all countries’ attractiveness.
The specific figures in question are that France would experience an increase in tax revenues of 9.4 percent and Germany would experience one of 5.7 percent.
What the Council Suggests
Based on its findings, the French Council of Economic Analysis recommends a worldwide minimum corporate tax rate. It also suggests that the OECD redesign the proposals that form pillar one.
The council noted that the current pillar one would simply make it more complex to determine taxation rights without any gains in terms of allocation. The organization suggested that the OECD should instead propose allocating a specific fraction of the overall global profits to a market country, combined with anti-abuse measures that have been proven effective.
The council does caution that reforms would require all countries to be in agreement and have similar reporting.
What the Future Holds
The OECD is still in the consulting stage regarding the proposals. The French Council of Economic Analysis is far from the only organization to evaluate the proposals and offer suggestions. Theoretically, the OECD will consider the various commentaries and suggestions when adjusting its future proposals.
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