Current tax rules will not be enough to pay the bill for the crisis caused by the Covid-19 pandemic. This is the conclusion drawn by several economists in the new report, "The Global Pandemic, Sustainable Economic Recovery and International Taxation", published on Monday 15 June by the Independent Commission for the Reform of International Corporate Taxation (ICRICT).
The economists considered the following question: in the face of the significant increase in public spending to combat the pandemic and its effects on the economy, how can governments foot the bill without disproportionately shifting the economic burden onto disadvantaged groups of people and countries?
In their view, corporate tax cuts, as called for by some "to stimulate investment and recovery”, are neither economically efficient nor socially desirable. Instead, they advocate strengthening corporate tax systems by accelerating truly inclusive international cooperation.
“The 2008 crisis made us aware of the tax avoidance activities of multinationals [...] We desperately needed money in the aftermath of the crisis. This is 100 times worse”, Professor Joseph Stiglitz, one of the authors of the report, said at a press conference.
Progressive taxes and taxation of excessive returns
The report proposes to introduce progressive taxes on digital services and on the economic returns captured by multinational companies in this sector, which have emerged as winners from the pandemic, and to apply a higher tax rate to large companies in oligopolistic sectors with excessive rates of return.
These discussions are not new and are based on precedents of similar taxes during the Second World War on military suppliers or more recent taxes on the windfall profits of oil companies, the economists point out.
In their view, revenues could be specifically earmarked for the public and private costs of the pandemic. But again, to be effective, tax collection by the countries where these companies operate must be global, they say.
No bailout for the champions of tax evasion
According to economists, the pandemic has highlighted the special nature of contracts between companies and their home States. “Legal incorporation confers a series of privileges, such as limited liability and government support in national crises, but also imposes obligations - particularly taxation - to fund the ‘social contract’”, they reiterated.
So it makes sense, according to them, to prohibit State support for companies that have their seats or subsidiaries in tax havens, as has already been announced by Poland, Denmark and France (see EUROPE 12473/33).
Other proposals contained in the report also include the establishment of a minimum effective corporate tax rate of 25% worldwide and the publication of country-by-country reporting for all publicly supported companies.
The report also suggests publishing data on offshore wealth to enable all jurisdictions to adopt progressive and effective wealth taxes and to better control effective tax rates on the highest income taxpayers.
The OECD is not the right forum for discussion
Asked about the OECD’s ability to carry out some of the proposed reforms, ICRICT President José Antonio Ocampo said the issue of tax cooperation should be dealt with by the UN, not the OECD. “The OECD reports are less good on the issue of tax evasion and avoidance than those by the IMF”, he said.
According to Thomas Piketty, one of the report’s authors, the problem with the OECD is that the “poor countries’ perspective is too absent”. Another limitation, according to him, is that the organisation is only interested in corporate taxation, rather than having an overall view.
The French economist also felt that it would be difficult for the EU to make progress on these tax issues with all 27 Member States. According to him, the impetus will come from a small group of countries including France, Germany, Spain, and Italy.
See the report: https://bit.ly/3e6d9lX (Original version in French by Marion Fontana)