Technology companies will sneak through the gaps of the new global tax network

Technology companies will sneak through the gaps of the new global tax network
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Countries like Ireland have ways to get around the proposal for a global minimum corporate tax of 15%

Fishermen do not catch many fish using nets with large holes. A proposal for a global minimum corporate tax of 15% has equally large holes, through which tech giants like Alphabet, which owns Google, could sneak in.

The Group of Seven major industrial countries – Great Britain, Canada, France, Germany, Italy, Japan and the United States – could soon agree to such a tax on multinationals, according to the Financial times. It is less ambitious than the 21% rate proposed in April by US Treasury Secretary Janet Yellen, but it is still an important step. Moving profits to paradises like Ireland is not worth it if companies have to pay their own governments for any difference between their tax bill and the global minimum.

However, the proposal will not close all the loopholes that allow companies to avoid $ 500 billion in taxes each year, according to a 2018 study. The global average legal rate for companies is 24%, according to figures from the think tank Tax Foundation, so there would still be an incentive for some to use the havens.

The Organization for Economic Cooperation and Development (OECD), which oversees global negotiations on regulations, estimates that a global minimum of 12.5% ​​would raise approximately $ 90 billion. The new minimum of 15% would contribute more, but would not come close to the 500,000 million that are missing.

Finance ministers could apply a rate higher than 15% to profits obtained abroad by companies in their country. But tax havens could then devise new springs to attract multinationals like Google and Facebook. Concessional bargains on labor contributions, property taxes, and other deductions could substitute for low overall rates.

Even if more taxes are collected, the new network is likely to return much of the loot to the United States, rather than benefit France, Great Britain, and heavily populated developing economies like India.

The overwhelmingly American tech sector accounts for 20% of global revenue, but only 10% of taxes, Goldman Sachs analysts calculate. The proposal that could win the backing of the G7 would funnel more tax revenue to Yellen, but not necessarily to anyone else.

Countries like France want to claim a larger share of the profits generated locally by American digital groups. As technology benefits grow in the coming years, these countries will want an even bigger overhaul of global tax rules.