After more than a century of tax havens on the planet, can we really hope to see the end of them in 2023? The question is more important than ever as pandemic-weary citizens now have to deal with an accelerating environmental crisis, an inflationary wave and a possible recession that literally cut off the legs of many of them. .
In Foreign direct investment under the microscope, released by the Canadian government, states: “Interestingly, a number of Caribbean economies are among the top 10 destinations for Canadian direct investment abroad: Bermuda, Cayman Islands and Barbados . No, it’s not just an interesting fact, it’s also a shocking and discouraging fact. These three countries are among the worst tax havens in the world and Canadians have been asking for this problem to be fixed for years.
If we add Luxembourg to the list, investments by Canadians in these countries totaled $250 billion in 2021. Twenty years earlier, when I started writing Those rich who don’t pay taxes and that I was publicly scandalized by the issue of tax havens, this figure was 50 billion.
However, despite the power of this phenomenon, which has been growing for 100 years, there is reason to hope that 2023 could mark the end of tax havens, at least in large part.
This hope comes from the fact that it is expected that multinationals will be subject to a global minimum tax at the rate of 15% from 2023.
Since the end of banking secrecy, let us recall that it has become practically impossible for citizens to evade tax thanks to tax havens without being spotted by the tax authorities. However, to target multinationals, a key element was missing and it is the global minimum tax (IMM) by preventing multinationals, which achieve a turnover of more than 750 million euros, from lowering their tax rate. effective taxation below 15%, in particular through the use of tax havens.
The IMM was adopted in October 2021 by nearly 140 countries and jurisdictions, representing 90% of total global GDP. However, history is full of decisions and agreements that countries end up never respecting. The Paris Agreement is probably the most recent known example. So, where are we with the establishment of the IMM?
Many countries, such as Canada, Singapore and Jersey, have launched consultations on how to implement the measure.
Difficult unanimity
On the side of the European Union (EU), the Member States had great difficulty in obtaining the necessary unanimity on this directive. In the past year, Poland and Estonia opposed the measure; then Hungary, which had already given its agreement in 2021, had been blocking the agreement since June 2022, citing the economic impact of the war in Ukraine. However, after months of intense negotiations, EU member states reached an agreement this week on the introduction of IMM into tax law by the end of 2023, to come into force as early as 2024. .
On the US side, a minimum tax of 15% was actually passed in the summer, but this is a separate tax and not compliant with the IMM. If the two taxes are similar in appearance, in reality there are important differences. For example, this US minimum tax applies to the global income of the multinational, unlike the income calculated by country of operation as advocated by the OECD, which raises fears that this will not prevent the misuse of havens tax.
It’s hard to imagine IMM in practice without the United States on board. Its global implementation will therefore perhaps be postponed for a few months to allow the implementation of a coordinated measure with the United States and to give each country time to include it in its taxation.
But the economic and possibly social difficulties of the coming months could also reduce citizens’ level of tolerance towards tax havens and confront political decision-makers with the need to act quickly.
Although the IMM is the most important measure ever introduced at the international level in the fight against tax havens, it will not put an end to it, in particular because it includes a special clause called “substance exclusion” which allows companies to pay a tax rate of less than 15% in countries where they have many employees or tangible assets. Moreover, it does not target the smallest multinationals. Also, a third of the countries, representing more than 2 billion people, have still not agreed to join the initiative.
On April 20, 1961, President John F. Kennedy recommended to the American Congress the elimination of the “tax haven project” everywhere on the planet. More than 60 years later, let’s hope that we are entering our lucky years and will finally succeed in stemming this scourge.