Donald Trump signaled Monday his intention to retaliate against any foreign country that decides to impose a global minimum tax or a tax on digital services on American multinationals.
The announcement was among the multitude of decrees that the new US president signed on Monday in the hours following his inauguration. An inauguration ceremony where the leaders of some of the largest digital companies in the country were just a few meters away.
One of the decrees aims precisely to let other countries of the Organization for Economic Co-operation and Development (OECD) know that, contrary to what his predecessor in the White House had indicated, his country no longer intended to collaborate the establishment of new international rules aimed at reducing tax avoidance by large fortunes and multinationals. The executive order on an “America First” trade policy also includes a passage promising to investigate any foreign country that risks levying “discriminatory or extraterritorial” taxes on American citizens or businesses. .
These announcements are not surprising and do not change much, explained in an interview with Duty Lyne Latulippe, professor and principal researcher at the Research Chair in Taxation and Public Policy at the University of Sherbrooke. Donald Trump has always been against these new international rules, while Joe Biden’s spirit of cooperation never went as far as their adoption and implementation in the United States.
All this indicates at the moment, says the expert, is perhaps that Donald Trump fears that with the new tax cuts he promises to American companies, their effective rate will fall below the minimum threshold of 15% prescribed by the OECD, which would open the door to participating countries who would like to take the difference.
This also suggests that Washington’s reaction could soon become much more fierce against the twenty countries, including Canada, France, the United Kingdom and India, which apply a tax on digital giants regardless of their physical presence or not on their territory. Officially applied in Canada since this year, its digital services tax could bring the federal government revenues of 7.2 billion over five years.
Difficult takeoff
The system developed at the OECD is based on two “pillars”. Pillar 1 would apply to very large companies whose turnover exceeds 20 billion euros per year. It would give governments the right to tax their global profits in proportion to their domestic sales, even if companies don’t have factories or employees there. As this aspect of the project is struggling to take off, several countries have opted for a tax on the profits of digital giants in the meantime.
Pillar 2 sets the minimum tax rate at 15% on the profits of multinationals with a turnover of more than 750 million euros. One of the advantages of this system is that it encourages the 137 participating countries to respect at least this minimum with their national companies, otherwise other governments which have subsidiaries on their territories would have the right to take the difference.
-The withdrawal of the United States from the OECD agreement “probably jeopardizes the implementation of the global minimum tax,” estimates Edgar Lopez-Asselin, coordinator of the Quebec collective Échec aux paradis fiscals. “On the other hand, no one would be deceived as to the obstacles that remain to be overcome with a view to increased international cooperation. »
As for the tax cuts promised to businesses by Donald Trump, they threaten to increase tax competition between countries and fuel a race to the bottom, he says.
Canada and Trump’s tax cuts
On this side, several observers fear that the American president’s upcoming tax cuts on corporate profits will force Canada to do the same, otherwise it risks seeing businesses move south of the border.
Lyne Latulippe is not sure. “There are so many other factors involved, like tax credits. And it all depends on the type of businesses and investments we are trying to attract. »
She cites as an example the effective tax rate that applies to new investments, which, when everything is counted, is currently just under 20% (19.7%) in the United States and only 14 .5% in Canada.
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