Global Minimum Tax: State Control For Financial Harmony

Won’t the only winners be the national and international technocracies?

In response to the call from the G20, OECD and G20 members have developed what they call the OECD/G20 Inclusive Framework which brings together nearly 140 countries and jurisdictions to work together to implement the measures of the BEPS Project aimed at combating tax base erosion and profit shifting, i.e. tax avoidance or evasion.

In October 2021, the said Inclusive Framework passed provisions based on two pillars.

A pillar 1 aiming to reallocate 25% of the profits of large companies to the taxation of the countries where their customers are located.
Pillar 2 corresponding to a coordinated system of global anti-base erosion (GloBE) rules to ensure that large multinational companies pay a minimum level of tax of 15%.

Pillar 1 is slipping and may never see the light of day, at least as it stands, but Pillar 2 is making headway.

It is intended that jurisdictions are free to adopt the GloBE rules, but if they do so, they commit to implementing and administering them according to the rules laid down by the OECD. These were approved and disseminated by the Inclusive Framework on December 20, 2021, then commented on in March 2022 with the aim of being transposed into the domestic law of each jurisdiction so that large multinational enterprise groups (MNEs) are subject to a minimum effective tax rate of 15% on any excess profit generated in each of the jurisdictions in which they operate. Tailored Administrative Instructions were approved by the Inclusive Framework on BEPS on 1 February 2023.

The EU Surfs on These Regulations

The European Union took the opportunity to add to its own regulations.

In December 2021, it published a 79-page draft directive, validated by the European Council in December 2022 to be applied in 2024, in order to define the MNEs which will be forced to declare the accounts of all their entities and recalculate their tax ratio to ensure that each entity pays at least 15% tax and, where applicable, reallocate additional tax to jurisdictions based on specific factors: the book value of tangible assets in the jurisdiction and the number of employees in the jurisdiction.

The rules, which provide, arbitrarily, the conditions under which the minimum figure of 750 million turnover must be calculated to be subject to this device, represent a new and costly maquis for these companies.

The EU continues to assume tax prerogatives which, in principle, should remain with the Member States. It uses the pretext of tax evasion, digitization, competition… to seize the subject: 2018 directive on the automatic and compulsory exchange of tax information, anti-tax evasion directive (ATAD 1) of 2016 , then ATAD 2 on hybrid vehicles, lists of non-cooperative tax jurisdictions, adoption in 2021 of a communication on company taxation for the 21st century which presents projects on a framework for company taxation in the EU, a “EU tax mix by 2050”, then the draft ATAD 3 directive unveiled on December 22, 2021 which stigmatizes holding companies, a new package adopted on February 23, 2022, called “Adjustment to objective 55”, aimed to standardize certain behaviors in favor of ecology and also containing an environmental tax… The Union is seeking to establish measures with extra-territorial effects in order to be able to control all its economic nationals.

A Costly Reform

Political leaders of countries around the world have accepted Pillar 2 out of conformity and under pressure from dominant countries. They also did so in the hope of obtaining a substantial tax product. The OECD has calculated that the second pillar could bring in $220 billion annually, or 9% of global corporate tax revenue. But this figure is not justified. These measures will undoubtedly have negative effects which are not taken into account.

Already some thirty large French companies, with the support of MEDEF, Afep and the French Banking Federation, “are alarmed”, say Les Échos, about the quantity and type of information that will have to be provided in the declarations sent to the authorities. They also express their “serious concerns” about the protection of “sensitive” economic data. Declarative obligations are likely to be costly, including for companies not concerned.

In Switzerland, where the OECD rules could be adopted after a vote which will take place on June 18, 2023 to change the Constitution to this effect, the Federal Department of Finance is concerned:

“The financial implications of minimum taxation are uncertain. Switzerland will lose its tax appeal. This could encourage companies to leave Swiss territory or not to settle there, which would result in reduced revenues in the field of corporate taxation and in other areas. The reform will also somewhat restrict tax competition within Switzerland itself. The reform will also increase the administrative burden for companies and authorities.

What may be true for Switzerland may also be true for other countries. Won’t the only winners be the national and international technocracies?

This article is originally published on

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