Canada, like 137 other countries around the world, joined the agreement. The federal government has introduced a bill that imposes the 15% minimum tax on large businesses, in accordance with the agreement. He also committed to imposing a tax on digital services himself, if negotiations on a single international tax do not succeed.
Since then, nothing has changed. On the eve of the next federal budget, the digital services tax is still awaited, and the minimum tax bill has not been adopted. This bill even provides that the measure applies from December 31, 2023.
The minimum tax and the digital tax are the two pillars erected by the OECD to support the international agreement. The first applies to the restricted club of digital multinationals, known as GAFAM, so that their profits are taxed in the country where they are made.
Under the second pillar, countries agree to tax the profits of all large companies with revenues above US$1 billion at a rate of 15%, everywhere in the world.
This second pillar is moving faster than the first. He wants to prevent multinational companies from establishing entities in countries with the lowest tax rates and isolating their profits there, a widespread practice.
The global minimum tax officially came into force in a few countries, including those in the European Union, in January 2024.
But many other countries are only engaged in the process, like Canada, which cannot be accused of dragging its feet. “There are several who are in the same situation, and no one has yet written a check to pay a minimum tax,” summarizes tax expert Lyne Latulippe, professor and researcher at the Chair in Taxation and Public Finance at the University of Sherbrooke.
In any case, the tax laws are retroactive and since Canada has already announced its intention to comply with the agreement, it will be able to apply it retroactively to December 31, 2023 when its law is in force.
Billions to recover?
If the OECD is to be believed, countries would be wrong to drag their feet because there is a lot of money to be recovered with the global minimum tax. If, for example, a Canadian multinational company declares its profits in a country where the tax rate is lower than in Canada, the Canadian tax authorities will be able to claim the difference between the minimum rate of 15% and the lower rate of the country in question.
According to the OECD, States will be able to raise billions of dollars thanks to the minimum tax which will prevent multinationals from declaring their profits where the tax rate is very low or non-existent. The figure of 150 billion US per year in tax revenue to be recovered appears in the organization’s official documents.
These are figures that are enough to tempt most countries, but they are greeted with a lot of skepticism by specialists in international taxation, such as Jean-Pierre Vidal.
We should not count on too many billions, believes the professor at HEC Montreal. “Countries that don’t have a tax rate of 15%, not crazy, will put one because they don’t want this revenue to be collected by another country,” he explains.
If all countries do this, there will be nothing to recover for anyone, according to him.
In a transition phase, depending on the time it takes countries to implement the minimum tax, some countries may succeed in recovering income that previously escaped the tax authorities, but in the long term, it risks being a zero-sum game.
The specialist also does not believe that the minimum tax will sound the death knell for tax havens, as the OECD asserts. “If a state considered a tax haven has a minimum tax of 15%, multinational companies will stay there, because 15% is even better than what they would have to pay elsewhere. »
In Canada and the United States, for example, the official tax rate for large businesses is between 20% and 26%, although the effective rate is generally lower and some companies legally manage to avoid paying tax. tax at all.
The minimum tax aims to eliminate harmful tax competition between countries. The 15% threshold is the result of a compromise, and many consider it too low.
Pierre Bourgeois, tax partner in the international tax group at the office of Raymond Chabot Grant Thornton (RCGT) in Montreal, also believes that the minimum tax will not be a jackpot for the countries that implement it. “When everyone is at 15%, there will be no more gain to be made. No country will want to leave tax revenues to another jurisdiction,” he says.
Tax competition will not disappear, believes the RCGT tax specialist. Tax credits are another way to achieve tax competition, he explains. Tax credits are used extensively in Canada and Quebec, particularly to encourage research and development or the video games sector.
Pierre Bourgeois sees another pitfall on the road to the global minimum tax: the equivocal position of the United States. Our southern neighbor has adhered to the principle of pillar 2, but it has still not moved to put it into practice.
Given the political situation in the country and the fact that 2024 is an election year, an about-face by the United States on the global minimum tax cannot be ruled out, according to him.
Could the global minimum tax rate deal work without the US on board? This question is difficult to answer, according to those who have been asked it.
Aleksi Eerola, who teaches international affairs at HEC Montréal, believes that it would certainly be more complicated. “It will be anyway,” he said, “because there are still a lot of unanswered questions.” »
How will the minimum tax system work and how will tax transfers be made? Who will ensure compliance with the rules?
One thing is certain, the recovery of the hundreds of billions of tax revenue at stake is not for tomorrow. It’s a huge project whose work is only just beginning.
As complex and difficult as it may be to achieve, the tax reform proposed by the OECD is still considered enormous progress.
“We are beginning to understand that taxation must be coordinated at the international level,” summarizes Jean-Pierre Vidal. We are entering a new era. »