Big European banks will pay 16% more with the global minimum rate

Big companies will have to pay more. With this basic idea, the finance ministers of the seven most advanced economies (G-7) are meeting this weekend in the UK. European banks may have to pay additional taxes of up to 16%, after the proposal for a global tax of at least 15% on profits.

French Economy Minister Bruno Le Maire said the powerful on the ground are “a millimeter away” from reaching an agreement. According to German Minister Olaf Schultz, “It is something that will change the world.” However, this procedure appears to be somehow inadequate.

tax burden

In fact, it is estimated that the nominal rates of the corporate earnings tax burden in the vast majority of countries are already higher (22%) and have also been declining for years, when in 1985 they were around 50%. With what this new limit will actually affect a few countries in Europe: Ireland (which has 12.5%), Hungary (9%) and Bulgaria (10%)

In addition, according to proposals being discussed within the G7, the goal is, under pressure from the United States, to limit this lower rate to the world’s most profitable companies, the ones that avoid the Treasury the most. According to OECD calculations, this will affect just under 10,000 companies.

However, in practice, applying a lower rate more broadly would have important implications, because the effective rate that large companies pay thanks to financial engineering and interest transfers to low-tax areas is much lower than what is required by law when you regulate taxes.

Assent

15% proposal aims to reduce corporate tax evasion

For example, the effective rate of corporate tax in Spain in 2019 is estimated at 20.6% if calculated on the basis of the total tax base and 9.2% if calculated on the basis of a positive accounting result, when the year is 25%, according to data from the Treasury.

It should also be taken into account that there are countries that do not levy corporate taxes, such as Jersey, Guernsey, Cayman Islands, Bahamas, Bermuda, UAE or Bahrain. In tax havens, the 15% rate would be a real revolution.

In this sense, the case referred to in the English Gazette can be cited. Watchman , according to the Irish subsidiary of Microsoft, which owns 260 thousand million euros in profits, did not pay a penny in tax on tax residence in Bermuda, and also distributed heavy dividends to the parent company.

In the past ten years

Amazon, Facebook, Alphabet, Netflix, Apple and Microsoft saved €79,290 million in taxes

According to a study published at the end of May by the British Fair Tax Foundation, American tech giants Amazon, Facebook, Alphabet (owner of Google), Netflix, Apple and Microsoft in the past ten years have saved 79.29 billion euros in taxes, taking advantage of the possibility of transferring Accommodation to tax havens.

These numbers sparked another parallel debate about the need to introduce a specific tax to tech giants, known as the Google rate: since it is difficult to know how many benefits these multinationals receive in each country, it is calculated on the basis of 3% of turnover. Countries like Spain or France have decided to go ahead (and unleash the US reaction, which threatens to impose tariffs on Europe worth $2,000 million), waiting for a global agreement that could arrive precisely in the next few days.

tax increase

European entities will have to pay more than 4,200 million

But now music can change forever. According to calculations provided this week by the European Union Tax Observatory, the tax bill with a global minimum tax for large corporations will not be negligible. There are companies that can significantly increase the tax burden, if in the end they cannot take advantage of the legal shortcuts to pay less and if they are obligated to pay for the benefits actually obtained in each country.

This center estimates led by economist Gabriel Zucman that large European banks may have to pay 16% more than they are now paying in taxes, around 4,420 million euros, while for the rest of the sectors, the increase will be close to 10%. If the rate is higher (25%), the entities will have to pay an additional fee of 44%.