THE PROBLEM
Multinationals are the big winners of globalization. They benefit fully from state-funded public services (transport and communications infrastructure, education, health, etc.) but make virtually no contribution to their financing. Thanks to skilful accounting manipulations, they lodge a large proportion of their profits in tax havens, where they are virtually untaxed.
TAX EVASION BY MULTINATIONALS
Multinationals excel in the art of sheltering their profits in tax havens to avoid paying taxes. To this end, they benefit from the assistance of prestigious consulting firms (Deloitte, EY, KPMG, PWC…) who provide them with turnkey tax optimization packages. These schemes, devised by specialists who are paid millions to make governments lose billions, are always based on the same philosophy: artificially relocate a maximum of profits to tax havens where they will be taxed little or not at all.
A multinational has its headquarters in one country and subsidiaries in others. These subsidiaries sell products and services to each other. However, they have a habit of manipulating these prices to minimize profits in high-tax countries and inflate them in low-tax countries. And, as one euro of profit cannot be taxed twice, profit taxed at 0% in a tax haven is not taxed when repatriated to the country where the multinational is headquartered.
Today, research and innovation are one of the main drivers of wealth creation. These innovations are protected by patents. We’re talking about intellectual property. The patent owner receives remuneration every time a company exploits his innovation. All a multinational needs to do is domicile its patents in a tax haven and pay for the use of these patents to artificially relocate its profits to a territory where they will be taxed little or not at all.
UNDERSTAND TAX EVASION IN 2 MINUTES
How Apple artificially relocated its profits to tax havens / Excerpt from the film Tax Wars
IN THE FACE OF TAX EVASION
Tax evasion has existed for as long as there have been taxes. But it took on a new dimension with the globalization of the economy and the liberalization of capital movements in the 1990s. From the 2000s onwards, it became clear that the problem was reaching alarming proportions, as documented by the pioneering Tax Justice Network. Many NGOs are taking up the issue. But it wasn’t until the financial crisis of 2008, with its attendant public deficits and unemployment, that wealthy countries decided to tackle tax evasion by multinationals.
THE GENESIS OF ICRICT
In 2012, the G20 asked the OECD – which brings together mainly developed countries – to find solutions to put an end to the practices of multinationals. Economists and NGO activists were quick to realize that the future of international taxation is being played out in this very select club. So how can the negotiations be influenced? So that they result in a reform that is both ambitious and mindful of the interests of the countries of the South? The idea of creating an independent commission of high-profile experts capable of influencing the choices made by governments and international institutions quickly took hold.
ICRICT
It will take two years to identify, convince and bring together fourteen high-profile personalities who are willing to put their weight behind a far-reaching reform of international taxation. The Independent Commission for International Business Tax Reform (ICRICT) was created in 2015. It has fourteen members from every continent. Economists, legal experts and former elected representatives. It benefits from the financial and intellectual support of fourteen NGOs. But the commissioners enjoy total independence in their actions and positions.
IN THE FACE OF MULTINATIONAL PRACTICES
The Global Minimum Corporate Tax represented an important step in international cooperation to end abusive practices by multinational corporations.
What was agreed internationally was a floor of 15%, with some exceptions that could bring the effective tax rate even lower than that. For this reason, ICRICT argues that the minimum tax should be set at 25% – the average in Europe – and without exceptions.
Let’s get away from the fiction that Google Ireland, Google France and Google Colombia are different entities. Multinationals are economic entities with the planet as their playground.
The idea of unitary taxation is to consider all the profits made worldwide by a multinational company, and to redistribute the proceeds of taxation according to the sales made in each country. This is the other key measure in the OECD agreement.
A STEP FORWARD, OF COURSE, BUT
The global minimum tax and unitary taxation represent a major change in philosophy. But for ICRICT members, this can only be a first step. The OECD’s 15% minimum tax rate on profits is insufficient. It should be raised to 25%. The same applies to unit taxation. For the time being, it only concerns a hundred or so multinationals.
Building on its initial success in taxing multinationals, ICRICT is now campaigning for an overhaul of the taxation of large fortunes. Like multinationals, billionaires largely escape ordinary income tax. In France, for example, the Institute for Public Policy (IPP) has shown that the top 378 French fortunes are taxed at just 2%.