Economy

From Apple To G20: Time For A New Tax World Order

Follow the money, which travels beyond borders more than ever before. But a new paradigm should be about more than just cracking down on evaders.

Apple Headquarters in Cupertino, California
Apple Headquarters in Cupertino, California
Jean-Marc Vittori

PARIS — It’s hard to know whether men really are from Mars and women from Venus. But you can almost be certain that tax collectors live on Uranus and large companies on Saturn, the two Solar System planets furthest from one another.

Let’s start our tour with a visit of the “ice giant.” Uranus needs 84 years to revolve once around the sun, and tax collectors also want to make their revolution in a little under 100 years. They want to break the wonderful corporate tax system created in the 1920s. A wonderful system indeed… for its time. We were then in the waves of what economist Suzanne Berger calls “our first globalization.”

In the previous 50 years, the biggest companies from Germany, the United States, France, established themselves all over the world. After World War I, the penniless nation-states were tempted to tax foreign companies heavily. The biggest companies of the time often paid their taxes twice: for the headquarters and the branches. To avoid a tax war, the League of Nations proposed one principle, namely that tax must be paid only once and at the place of production, which was easy enough to determine in the industrial era.

“Stable establishment” became the founding principle of the taxation of mutinational companies. As decades passed, thousands of bilateral conventions between countries made those rules more precise.

But in today’s digital era, this system is like a broken net. Companies localize their profits — and more and more often their turnover too — in countries where tax is the lowest, like Ireland where profits are taxed at 12.5%. Gulliverian companies pay Lilliputian taxes. And once again penniless after the great recession of 2009, states want to tighten the net around corporations.

The Organisation for Economic Cooperation and Development (OECD), the think-tank of developed countries, has taken on with success the project under the double instigation of its Mexican Secretary-General Angel Gurría and the director of its Centre for Tax Policy and Administration, the Frenchman Pascal Saint-Amans.

Encouraged by real political will and crucial technical support, the project is moving forward fast, unlike for example the international negotiations on environment, which do not benefit from neither of these two resources.

The plan presented in mid-September by the OECD, and adopted by the G20 Finance Ministers in Australia, circumvents the “stable establishment” by demanding companies to indicate to the tax authorities of each country their sales, profits and workforce in their local branches.

A warning

The plan also comes with a series of measures aimed at curbing, or even preventing, aggressive practices leading to base erosion and profit shifting (BEPS). And the 3,000 bilateral conventions would be replaced with a single multilateral convention. Almost a century of practices will be turned upside down, even though poorer countries, those less equipped to face tax evasion, will still struggle to get their money, as NGO Oxfam has warned.

Let’s now go to that gaseous giant, Saturn. There, on the contrary, the war against tax is on and American giants are spearheading it. One clear signal is that the issue of tax played a central part in all the big mergers attempts of the past few years. Pfizer-AstraZeneca, Publicis-Omnicom, Lafarge-Holcim, and others.

The movement started in the U.S. for two reasons. First, corporate tax there is high (up to 35%) and tax breaks are scarce. Second, it’s the homeland of information technologies and they juggle with borders. As a result, multinationals big and small hide their profits abroad. According to Bloomberg, seven American companies, including General Electric, Merck and Apple, each have more than $50 billion dollars parked abroad.

On top of that, Internet giants like Google and Amazon have built their whole global organization on tax minimization, and have done so with a formidable efficiency. Google thus paid in France 8 million euros of tax on last year’s benefits, with declared revenues of 231 million euros, although the company represents more than 90% of a search engine advert market worth over 1 billion euros.

Their competitors have but little choice. If they want to follow them in their price war, they also must go for fiscal optimization, whether their business is in information technologies, trade, banking or any area that is embracing the digital revolution.

“The digital economy is becoming the economy itself,” the OECD underlines in one of the hundreds of pages of documents it published on the BEPS. The sector already represents some $16 trillion of revenues.

This power struggle between the two planets will be decisive for two major challenges of the next few years. The first is the ability of each state to protect their money. The second is the ability of all states to take common decisions together. Beyond the issue of tax evasion, what is at stake is the very future of an open world.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

Preparing a COVID-19 vaccine booster in Huzhou, China.

Hannah Steinkopf-Frank, Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Ciao!*

Welcome to Wednesday, where Brazil's senate backs "crimes against humanity" charges against Jair Bolsonaro, the UN has a grim new climate report and Dune gets a sequel. Meanwhile, German daily Die Welt explores "Xi Jinping Thought," which is now being made part of Chinese schools' curriculum.

[*Italian]

🌎  7 THINGS TO KNOW RIGHT NOW

• Senators back Bolsonaro criminal charges: A Brazilian Senate panel has backed a report that supports charging President Jair Bolsonaro with crimes against humanity, for his alleged responsibility in the country's 600,000-plus COVID-19 deaths.

• Gas crisis in Moldova following Russian retaliation: Moldova, one of Europe's poorest countries, has for the first time challenged Russia's Gazprom following a price increase and failed contract negotiations, purchasing instead from Poland. In response, Russia has threatened to halt sales to the Eastern European country, which has previously acquired all of its gas from Gazprom.

• New UN climate report finds planned emission cuts fall short: The Emissions Gap Report 2021 concludes that country pledges to reduce greenhouse gas emissions aren't large enough to keep the global temperature rise below 1.5 °C degrees this century. The UN Environment Program predicts a 2.7 °C increase, with significant environmental impacts, but there is still hope that longer term net-zero goals will curtail some temperature rise.

• COVID update: As part of its long-awaited reopening, Australia will officially allow its citizens to travel abroad without a government waiver for the first time in more than 18 months. Bulgaria, meanwhile, hits record daily high COVID-19 cases as the Eastern European's hotel and restaurant association is planning protests over the implementation of the vaccination "green pass." In the U.S., a panel of government medical advisors backed the use of Pfizer COVID-19 vaccine for five to 11-year-olds.

• U.S. appeals decision to block Julian Assange extradition: The United States said it was "extremely disappointed" in a UK judge's ruling that Assange, the founder of Wikileaks, would be a suicide risk of he traveled across the Atlantic. In the U.S., he faces 18 charges related to the 2010 release of 500,000 secret files related to U.S. military activity.

• Deposed Sudan prime minister released: Prime Minister Abdalla Hamdok has been released from custody, though remains under heavy guard after Sudan's military coup. Protests against the coup have continued in the capital Khartoum, as Hamdok has called for the release of other detained governmental officials.

Dune Part 2 confirmed: The world will get to see Timothée Chalamet ride a sandworm: The second installment of the sci-fi epic and global box office hit has officially been greenlit, set to hit the screens in 2023.

🗞️  FRONT PAGE

Front page of the National Post's October 27 front page

Canadian daily National Post reports on the nomination of Steven Guilbeault, a former Greenpeace activist, as the country's new Environment minister. He had been arrested in 2001 for scaling Toronto's CN Tower to unfurl a banner for Greenpeace, which he left in 2008.

📰  STORY OF THE DAY

Chinese students now required to learn to think like Xi Jinping

"Xi Jinping Thought" ideas on socialism have been spreading across the country since 2017. But now, Beijing is going one step further by making them part of the curriculum, from the elementary level all the way up to university, reports Maximilian Kalkhof in German daily Die Welt.

🇨🇳 It's important to strengthen the "determination to listen to and follow the party." Also, teaching materials should "cultivate patriotic feelings." So say the new guidelines issued by the Chinese Ministry of Education. The goal is to help Chinese students develop more "Marxist beliefs," and for that, the government wants its national curriculum to include "Xi Jinping Thought," the ideas, namely, of China's current leader. Behind this word jam is a plan to consolidate the power of the nation, the party and Xi himself.

📚 Starting in September, the country's 300 million students have had to study the doctrine, from elementary school into university. And in some cities, even that doesn't seem to be enough. Shanghai announced that its students from third to fifth grade would only take final exams in mathematics and Chinese, de facto deleting English as an examination subject. Beijing, in the meantime, announced that it would ban the use of unauthorized foreign textbooks in elementary and middle schools.

⚠️ But how does a country that enchants its youth with socialist ideology and personality cults rise to become a world power? Isn't giving up English as a global language the quickest way into isolation? The educational reform comes at a time when Beijing is brutally disciplining many areas of public life, from tech giants to the entertainment industry. It has made it difficult for Chinese technology companies to go public abroad, and some media have reported that a blanket ban on IPOs in the United States is on the cards in the next few years.

➡️ Read more on Worldcrunch.com

📣 VERBATIM

"I'm a footballer and I'm gay."

— Australian soccer player Josh Cavallo said in a video accompanying a tweet in which he revealed his homosexuality, becoming the first top-flight male professional player in the world to do so. The 21-year-old said he was tired of living "this double life" and hoped his decision to come out would help other "players living in silence."

🇸🇩💥  IN OTHER NEWS

Why this Sudan coup d'état is different

Three days since the military coup was set in motion in Sudan, the situation on the ground continues to be fluid. Reuters reports this morning that workers at the state petroleum company Sudapet are joining a nationwide civil disobedience movement called by trade unions in response to the generals' overthrow of the government. Doctors have also announced a strike.

Generals in suits At the same time, the military appears firmly in control, with deposed Prime Minister Abdalla Hamdok allowed to return home today after being held by the coup leaders. How did we get here? That's the question that David E. Kiwuwa, a professor of international relations at the University of Nottingham, takes on in The Conversation:

"Since the revolution that deposed Omar el-Bashir in 2019, the military have fancied themselves as generals in suits. They have continued to wield enough power to almost run a parallel government in tension with the prime minister. This was evident when the military continued to have the say on security and foreign affairs.

Economy as alibi For their part, civilian officials concentrated on rejuvenating the economy and mobilizing international support for the transitional council. This didn't stop the military from accusing the civilian leadership of failing to resuscitate the country's ailing economy.

True, the economy has continued to struggle from high inflation, low industrial output and dwindling foreign direct investment. As in all economies, conditions have been exacerbated by the effects of COVID-19. Sudan's weakened economy is, however, not sufficient reason for the military intervention. Clearly this is merely an excuse."

➡️ Read more on Worldcrunch.com

#️⃣  BY THE NUMBERS

471 million euros

Rome's Casino di Villa Boncompagni Ludovisi, better known as Villa Aurora, will be put up for auction in January for 471 million euros ($547 million). The over-the-top price tag is thanks to the villa having the only known ceiling painting by Renaissance master Caravaggio.

✍️ Newsletter by Hannah Steinkopf-Frank, Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Who wants to start the bidding on the Caravaggio villa? Otherwise, let us know what the news looks like from your corner of the world! info@worldcrunch.com!

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
THE LATEST
FOCUS
TRENDING TOPICS
MOST READ