Pillar I of international tax reform, as agreed by the G20/OECD Inclusive Framework on 1 July (see EUROPE 12753/1), is expected to affect only 78 of the world's 500 largest companies, according to the latest study published, on Monday 5 July, by the European Network for Economic and Fiscal Policy Research (EconPol).
Pillar I will allocate part of the profits of very large multinationals to the countries in which they make sales. Under the agreement reached by the 130 countries last week, the measure will only apply to companies with a turnover of more than USD 20 billion and a profitability rate of more than 10%.
The authors, Michael Devereux and Martin Simmler, took the Fortune Global 500 list as their starting point. Of these 500 largest companies, 121 are in the financial sector and 10 in the extractive sector, which are currently excluded from the scope. Of the remaining 369 companies, very few have a profitability rate of more than 10%, bringing the number of companies concerned to 78 and the total allocation (‘Amount A’) to USD 87 billion.
In their view, the decision to exclude financial companies from the scope reduces the total allocation of the ‘Amount A’ by about half. If the financial sector were included, the number of companies subject to Pillar I would increase by 70%, they point out.
Furthermore, by reducing the revenue threshold for multinational companies from USD 20 billion to EUR 750 million, the number of companies affected would increase by a factor of 13, from 126 companies to 1,720, they estimate.
The authors also conclude that the sectoral composition of companies under Pillar I is strongly affected by the definition of profitability used (i.e. pre-tax profits as a proportion of revenue).
Among European companies with a revenue above USD 20 billion, there are almost twice as many companies with a return on equity above 10% compared to those that have a return on revenue above 10%.
According to the study, about 45% of the total estimated ‘Amount A’ would be generated by digital companies. The US technology giants - Apple, Microsoft, Alphabet, Intel and Facebook - are expected to generate around USD 28 billion just among them.
About 64% of the estimated ‘Amount A’ would be generated by US-based companies and 10% by companies based in China. Other major developed countries, such as Germany, France and Japan, would account for less than 2.5%.
See the study: https://bit.ly/3dHb8yE (Original version in French by Marion Fontana)