“Tax evasion was a kind of rule of thumb because it was legal and the states let it happen”, explains the director of the Center for Tax Policy and Administration of the OECD (Organization for Economic Co-operation and Development) Pascal Saint-Amans Thursday, April 7 on franceinfo. The National Financial Prosecutor’s Office (PNF) has opened a preliminary investigation for aggravated laundering of tax evasion against the consulting firm McKinsey, accused of not having paid corporate tax in France between 2011 and 2020.
franceinfo: Would this case have existed without the Senate report on the massive use of consulting firms by the government?
Pascal Saint-Amans: The case would never have existed in the media, but that does not mean that the tax administration would not have made adjustments. The tax administration, when it acts, does so discreetly, contrary to customs, which always publish their results. The check could have been made, adjustments made, we cannot know, in any case, clearly, the subject would not have been in the media. Bercy massively investigates what is called transfer pricing. It’s tax jargon which means that multinational companies can transfer their profits, their results from one country to another in a completely legal way and it is necessary that they do so according to the rules. But, sometimes, they hijack these rules to in fact transfer the profits they make in high-tax countries like France, to put them in low-tax countries, this is called tax evasion. Bercy is equipped to verify this type of operation and does so massively.
A company like the McKinsey firm, which has a turnover of 300 million euros in France, can therefore not pay corporate tax here in all legality?
Taxation is always a bit complicated. You have to understand that turnover means recording sales, it does not necessarily mean making a profit and therefore paying corporation tax. On the case of McKinsey, I do not have access to the figures so I cannot say if this is the case.
“There are plenty of companies that not only make turnover but profits and do not localize this profit enough in France by manipulating these transfer pricing rules which consist of paying royalties or paying for services to a another subsidiary of the group or another company of the group to move the tax base from France abroad.
Pascal Saint-Amans, Director of the OECD Center for Tax Policy and Administrationat franceinfo
This is what the tax authorities must verify. These rules are a little weak internationally and that is why over the last ten years, we have largely repaired them so that companies can no longer do anything legally, which was unfortunately all too much the case until five or six years ago. Today, I think tax administrations are well equipped and businesses are changing their approach. Tax evasion was a sort of rule of thumb because it was legal and the states let it happen. Today, this is no longer the case and companies need to be much more compliant than they were in the past.
The global corporate tax with a minimum rate of 15% on multinationals will be introduced next year. Will this prevent such practices?
No, the global minimum tax will not change the use of transfer pricing, on the other hand, it will lead to these companies paying at least 15% on their profits. There will be no way around this 15% because we have designed it in a somewhat diabolical way: if a country does not take the 15%, another country will take it. We are pretty sure of that, if it is applied. Now, the European Union, for example, must end up agreeing to apply this rule. The fact that companies pay at least 15% on their profits means that all this sophisticated tax engineering will no longer make sense. Companies will no longer have to pay a lot of tax lawyers to reduce their tax rates because if you have a floor of 15%, there won’t be much point in doing that. We really hope there will be a massive impact and we are pretty sure that there will be no trick to get out of this 15%.