Vice Chancellor Olaf Scholz stands by the Venice lagoon and promises: “That will make the world a better place.” He is proud: The major industrialized and trading countries have agreed to dry up tax havens around the world and to demand more taxes from large digital companies. In the end there was applause from the scene, reports the SPD politician. For the chancellor candidate it is a welcome success in the election campaign: for years he had been one of the international driving forces behind the reform. Its aim is to turn a system inside out that is no longer up to date after around 100 years.
In the past few decades, countries around the world have been caught in a race to the bottom: In the struggle to attract large companies, they have continued to lower their corporate taxes. “This is a race that no one has won,” says US Treasury Secretary Janet Yellen. Instead, it deprived the countries of resources that they would actually have better invested in the citizens and infrastructure, i.e. in schools, hospitals or in retirement.
Ultimately, global corporations – especially large digital companies such as Amazon and Google – often paid hardly any taxes because they shifted profits to tax havens or saved billions with tricks. This is unfair compared to the small craft business or the bookstore around the corner, according to the German Ministry of Finance.
The solution – two pillars
Two innovations are now planned: All internationally active companies – regardless of where they are based – should pay at least 15 percent tax. No tax rate is prescribed to any state. But if a company with its subsidiary pays less taxes abroad, the home country can collect the difference. So it would no longer be worthwhile to shift profits to tax havens.
The second part of the reform deals with the distribution of the tax cake among the countries. Large companies should no longer only be taxed in their mother country, but also where they do good business. This also applies to the digital corporations, which make high profits through Internet sales or advertising clicks where they have no branch at all. According to the previous rules, they do not have to pay taxes there. That should change – but the exact formula for the distribution is still being worked on.
Consequences for German companies
The new distribution rules should only apply to large and highly profitable corporations. It is unclear how many German companies are included. A study by the Ifo Institute for the Ministry of Finance, from the World on sunday cited, lists eight companies: the electronics retailer Ceconomy, Deutsche Telekom, Henkel, RWE, Bayer, SAP, Adidas and Deutsche Post. However, the large American digital corporations such as Google and Apple, which would then have to pay more taxes in Europe, are likely to be more affected.
Germany would probably not have to adjust its corporate taxation. Because companies in this country are already paying 30 percent more than the planned minimum rate of 15 percent. In eleven other EU countries, on the other hand, there are currently corporate taxes of less than 15 percent, according to EU Economic Commissioner Paolo Gentiloni.
What comes out for Germany
The Organization for Economic Cooperation and Development (OECD) expects the minimum tax alone to generate additional tax revenues of $ 150 billion worldwide. The redistribution could bring the so-called market states again more than 100 billion dollars. There are no reliable figures for Germany: The Ifo scientists are reckoning with 0.7 to 0.9 billion euros as a result of the redistribution; according to EU figures, the minimum tax could also bring in 5.7 billion euros for Germany.
How it goes on
132 of the 139 OECD countries have now given their approval at the working level (PDF), including well-known tax havens such as the Cayman Islands. The three EU states Ireland, Estonia and Hungary, on the other hand, have so far refused – probably also because their business model is low corporate taxes. Ireland’s Finance Minister Paschal Donohoe fears that his country could lose a fifth of corporate tax revenues. In the Scholz Ministry one is nevertheless sure that the three can still be “brought into line”.
Following the decision of the G20 states, detailed questions should now be clarified. Among other things, there is still a struggle about how exactly to define corporate profits. Some countries like France would also like a higher minimum tax rate. Scholz wants the reform to come into force in 2023. A multilateral international agreement is to be concluded for the new distribution rules. The minimum tax must be implemented individually in the states.
The stumbling blocks
Scholz is certain that nothing will go wrong anymore. But not only the three EU deviants could become a problem, a clear majority in the US Congress has not been identified either – even if Yellen is confident and emphasizes the particular benefit of the reform for the Americans. National digital taxes, which exist in France, Spain and Italy, for example, could be a problem. For a clean deal, they would have to be withdrawn. Yellen also warned about this in Venice. Economic Commissioner Gentiloni wants to stick to EU plans for a digital levy.
It is uncertain whether the reform can really slow down the competition for the settlement of large companies. Because nobody forbids the states to lure companies with other facilities. Conceivable would be lower social security contributions, lower property taxes or high research grants and settlement grants. Critics, including members of the Union and the Greens in the Bundestag, also complain that exceptions are planned for banks, shipping and the extractive industries. Large cargo ships can, for example, continue to sail cheaply under the flag of tax havens such as Panama, Liberia or the Marshall Islands.