Legal news
What Impact Could the U.S. Presidential Election Have on Global Tax Harmonization ?
The OECD is working to harmonize both tax rates and tax bases worldwide, in order to fairly tax profits from the digital economy and multinational corporations, as well as to combat tax fraud and competition between states (the so-called Pillar 1 and 2 initiatives). see the United States weigh more heavily on these efforts, which are being driven and even initiated by the European Union and notably France.
What is the U.S. position on this issue, and would Trump’s recent victory change the situation ?
Without needing to wait for the election, the Biden administration had already begun to distance itself from these harmonization initiatives.Earlier in 2024, and again this summer, the administration refused to move forward on the idea of a global minimum corporate tax rate of 15%, a tax on the super profits of multinationals, or taxing digital services based on the location of consumption, arguing that the U.S. companies had too much to lose. This situation is partly due to the inflexible position of the U.S. Congress on these matters.
With Donald Trump’s recent victory, this protectionist approach may become even more aggressive. He has proposed lowering the corporate tax rate from 21% to 20%, with a reduced rate of 15% for companies manufacturing within the United States. This measures, along with possible sectoral exemptions or subsidy practices, could intensify worldwide tax competition and weaken the harmonization efforts of the other OECD countries.
What reactions can be expected from the European Union and France ?
As a form of counter measure, France is likely to maintain its digital services tax, which primarily targets American tech giants such as the GAFA companies (Google, Apple, Facebook, Amazon). This tax could have been lifted in the event of an agreement on the allocation of taxable digital profits, notably to reflect the consumer use of these digital services. The same applies for countries like Italy and the United Kingdom, for example. Other nations may adopt similar national measures, creating real risks of double taxation or inconsistencies for businesses (notably in how the consumer presence is computed from one country to another). This was the case with Canada, which led to a diplomatic dispute with the United States.
EU countries’ tax administrations could also take a tougher stance against American multinationals operating on their soil by attempting to prove or increase their taxable presence, sometimes through tax audits or by requesting assistance from other tax authorities. In certain cases, tax raids in the French representative office of a foreign company or its own French subsidiary’s offices can be implemented, to gather on-site evidence of a French permanent establishment of the parent company, in order to allocate French taxable basis to it. This could also result in even more systematic questioning of payments made by EU subsidiaries to US parent companies, whether for royalties or services invoiced by the latter, for example. In such a case, the tax deductibility of these expenses might be even more challenged, via transfer pricing analysis, anti-hybrid provisions or anti-evasion measures, notably if these payments are made in low-taxed countries.