The G7, on the American initiative, ruled yesterday that large companies will have to pay a tax on profits of at least 15 percent. Is it good or is it bad?
There are countries like Italy, for which that minimum rate would be a dream, thinking that, with IRAP, the corporate tax is almost double. There are others, within the European Union, such as Ireland, for which it would be an increase. Defining a world minimum rate for taxes on profits is therefore only relevant for those countries that are particularly generous today, it is worth nothing for those, such as Italy, France and Germany, that stave off corporate profits.
This new bar will do little to high-tax countries. Let us try to explain it clearly. The real fiscal problem of the current digital economy is not so much the weight of the tax rates, but the place where revenues and profits are made. Facebook, Google, Apple and to a certain extent Amazon (which, however, having the warehouses on site, has stable organizations around the world) make mountains of profits that they centralize in the tax office that they establish a priori. If Google makes a turnover of 100 in Italy and a relative implicit profit, it does not pay it in full in the country in which it makes it. To simplify, it does not matter if Google will now be forced to pay at least 15 percent on its profits, if this will not happen where it makes it, but in the tax office it has chosen.
The issue therefore is not tax competition, but the fact that digital multinationals do not pay where they make profits. Which, given the immateriality of the service they perform, may be inevitable. For this reason, many European states have invented the so-called web tax. It is not based on profits, but on the turnover achieved. Which is simpler to calculate and impute country by country, but which is a very crude measure of taxing a business.
Biden is playing an entirely different game. The US president plans to raise corporate taxes to 28 percent. Therefore, more than Europeans, he fears possible tax competition. There is also a political aspect. For the OECD, fiscal erosion does not exceed 240 billion, and in the most optimistic of forecasts, the United States with the proposed minimum tax could take home 166 billion in additional revenue: nothing compared to a deficit this year equal 33% of GDP thanks to fiscal stimuli of six trillion dollars. Biden knows perfectly well that sooner or later that hole will have to pay, and the high road is an increase in taxes on the American middle class. To do this, we must first hit the rich (same principle as Enrico Letta’s proposal on the succession in Italy) so as to make the tax hemlock more digestible for others.