OECD tax chief warns of trade wars if global deal not implemented


The outgoing OECD tax chief, who masterminded the most sweeping corporate tax reforms for nearly a century, has warned that the US and Europe risk reviving trade wars and face hundreds of billions of dollars in lost revenue if they don’t implement last year’s global deal. .

Some 136 countries have backed a two-pronged deal that aims to address public outrage over multinationals not paying their fair share of taxes. But progress on both pillars of the reforms has stalled, despite OECD calculations showing that governments could collect more than $150 billion in additional taxes annually from the world’s largest corporations.

Pascal Saint-Amans, who was head of the Paris-based organization’s tax department for the last decade, said: “I see some serious risks of unilateral measures, and therefore trade sanctions, at a time when countries who are allies, in a difficult political context, may not want to trigger trade wars over a fiscal issue.”

One measure, which seeks to force the world’s 100 largest multinationals to declare profits and pay more taxes in the countries where they do business, is unlikely to win enough support in the US Senate. mid 2023.

However, Saint-Amans said the US would eventually sign on, or risk returning its Big Tech giants to a scenario where they would face a web of separate digital service taxes from multiple countries.

“The alternative is so bad,” he said, adding that he hoped such taxes would spread beyond big tech to multinationals in other sectors, such as pharmaceuticals.

the The United States has threatened in the past impose sanctions on European countries that introduced taxes on digital services.

The other part of last year’s deal, which imposes a 15 percent floor on effective corporate tax rates affecting all multinationals with revenues above €750m, has also stalled.

The United States tried to introduce it earlier this year, but ignored important elements of the ruleswhile Brussels has faced opposition from member states Poland and Hungary.

The EU has been trying to get minimal tax reform into EU law, but this requires unanimous approval from member states, and Budapest continues to object. Saint-Amans said the measure had been “held hostage.”

“It appears that Hungary is seeking to release some EU funds that are blocked by the EU Commission due to rule of law issues,” he said.

Many tax professionals are skeptical that the agreement will become other national legal codes without the support of major jurisdictions such as the US and major European economies.

Saint-Amans said that the implementation was “not losing momentum” and that the elements would start to be legislated in Europe within “a couple of months”. Hungary’s refusal would not prevent the bloc largest member states to go ahead with the plan by introducing its own national legislation.

“If there is no agreement, the countries will move. They will move unilaterally, because they can. That is our legal and political assessment,” Saint-Amans said. Germany has signaled in recent months that it is willing to go it alone, if necessary.

He argued investors would support a broader tax base and said markets had sent a clear signal that former UK Prime Minister Liz Truss’s attempt to turn Britain into a “Singapore-on-Thames” low-tax “wasn’t the right thing to do. .

The deal followed years of arduous negotiations led by Saint-Amans, who is leaving the OECD on Monday.

He had originally planned to leave when the deal was struck last fall, but stayed on to help the new general secretary, Mathias Cormann, appointed in June last year, start implementation work.

Saint-Amans came under fire from the Financial Transparency Coalition, a network of campaign groups, after it emerged that he was joining Brunswick advisers. Saint-Amans denied there was a “revolving door” between the OECD and the private sector, saying he would not join a tax firm or work on behalf of clients with his future former employer.

“What is the counterfactual, that I die in my job and can’t do anything else?” he said.

The agreement is the most radical tax reform since the League of Nations developed its first model treaty to avoid double taxation in 1928. The OECD previously estimated that it would bring an additional benefit $150 billion a year in taxes from multinationals, but will soon publish updated estimates that, according to Saint-Amans, would show “much higher figures”.

Critics such as the Tax Justice Network lobby group have claimed that minimum tax rules discriminate against low-income countries, which have few major multinational companies based there.

Saint-Amans argued the opposite, saying the minimum tax would generate “very significant revenue” for developing countries because it would force them to end “wasteful” low-tax incentives to entice businesses to locate there.

A central concern among companies and tax administrations is that the rules are fiendishly complicated. Auditor EY estimated that a company would need to obtain around 200 data points from subsidiaries around the world to determine whether more revenue was due under global tax floor rules, a “huge amount of work”, according to the tax policy leader. of the group, Chris. sanger.

OECD officials are working on administrative guidance to simplify the implementation process, but have not produced estimates of how much it would cost companies to prepare.


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