Analysis: tax optimization of large-scale

Photo: Remy Gabalda Agence France-Presse
There is a discrepancy between the location of the reported earnings and the place where are carried out the economic activities, stresses the OECD.

The new report from the OECD does not shake the pillars of the temple : tax optimization goes hand in hand with multinational company. But the new data drawn from a wide reading of the statements of income is used to formalize this relationship.

The data, published on Wednesday in the second edition of the Statistics of the tax on the companies come from the aggregate information on tax and global economic activity of nearly 4000 groups companies and multinationals with their headquarters in 26 States and carrying out their activities in over one hundred territories in the world.

The Organization of economic cooperation and development (OECD) pointed out that this data set is the result, in 2016, ” a major project, which is based on the obligation of multinational companies to file reports, country by country, under the OECD / G20 on the erosion of the tax base and benefits transfer (BEPS) “. This project BEPS, born in the wake of the 2008 financial crisis, brings together over 135 member States to ” work together to fight the tax planning strategies of multinational companies, which exploit vulnerabilities and differences in the international tax rules to avoid tax “.

Tax competition

So much for theory. In practice, the report is less philosophical or ideological. It makes first light on the tax competition between countries competing against each other to attract business. The statutory tax rate, statutory or official, it is according to, is in decline for the past 20 years. It was, on average, of 20.6% by 2020, up from 28 % in 2000. Out of 109 territories covered, 21 applied a rate equal to or above 30 %, while 12 have a rate of zero and 2 are below 10 %. Twenty years earlier, 68 had an official rate equal to or higher than 30 %, of which 13 a rate equal to or greater than 40 %. Today, only India is placed in the camp of 40 % and more among the jurisdictions observed, with a rate of 48.3 per cent (comprising a tax on the dividend distributed).

And that’s not counting the difference between the statutory rate and effective rate, the effective tax burden being modulated at the rate of depreciation expenses, deductions and other tax credits, or even of the different payroll taxes.

And tax optimization

With respect to the tax optimization, the data confirms it. “There is a mismatch between the location of the reported earnings and the place where are carried out the economic activities “, stresses the OECD. It is observed that the reported transactions by multinationals in the jurisdictions with low tax rates represent 25 % of their profits, but only 4 % of their workforce. Also, the median of turnover per employee is far higher than in countries where the legal rate of tax on corporate income is zero. He is above US $1.4 million, compared to US $240,000, where the rate is lower than 20 % and 370 000 US$, where it is higher than 20 %.

These data are transferred to the international negotiations on the taxation of multinational companies — the giants of the digital head — driven by the OECD, to achieve this year, but paused in the last month by the United States claiming to want to fully focus on the fight against the pandemic. This country and Japan are home to more than half of the seats in the social among the jurisdictions in observation in the OECD report.

The reform restraint has two pillars. The first section is intended to impose the tax not according to the physical presence, but according to the activity carried out in the country. The second one suggests a tax rate a minimum in order to mitigate the tax competition between the States and minimizing strategies for the transfer to countries with low taxation. Rather refractory, the United States has raised the ire in December, in advocating for a multilateral agreement is non-binding and by proposing the addition of a clause that was to allow the giants of the digital to evade the new tax.

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