Global minimum tax will work, if implemented, OECD’s Saint-Amans says

By Doug Connolly, MNE Tax

OECD tax policy director Pascal Saint-Amans in a November 4 interview expressed that the political agreement on a 15% global minimum effective tax rate is a big deal, that he is very pleased with the outcome, and that he has little fear of companies attempting to exploit loopholes to evade the tax because of the way it’s structured.

Responding to a question about what could go wrong, Saint-Amans noted that currently there is only a political deal. Legal instruments, including a multilateral instrument, are needed to implement the agreement, he explained in the interview, which was held at the Web Summit tech industry event in Lisbon.

While implementation remains a hurdle, the political accomplishment was significant. Regarding his level of satisfaction with the deal on a scale of one to 10, he said he was close to a 10. He explained that when they started working on this five years ago, they were talking about maybe a 12.5% minimum rate, and 15% was seen as maybe the highest possible. He further described the deal as a “page turner,” adding that the “last time you had rules for international tax was the League of Nations in 1928. We’ve changed that.”

There is little worry about loopholes because the system is “a bit devilish,” he contended. “If you have one country, or the other, at the end of the chain of where a company operates, you will get the minimum tax. Whatever the company does, they will fall into that mechanism.”

That is – if it is implemented. “We need countries to ratify the multilateral convention. We need the US Congress – which is always reluctant to ratify multilateral stuff, in particular, in tax – to ratify.”

Still, he expressed confidence, noting “whether it takes six months to implement or a few years, it will happen.”

Saint-Amans and the OECD are focusing now on developing the necessary legal instruments and treaties. “We need to implement the deal. We have six months to come up with a multilateral convention, which will have to be signed by 140 countries.”

It will take some political effort. As he explained with respect to what was needed to reach the October 8 agreement between 136 countries, “You have to drag them. You have to herd cats.” He added that the negotiating process required a lot of political calls between finance ministers. Two arguments were particularly convincing in this respect. One, there would be chaos without a deal. Two, the US administration is prioritizing this now – and the US brings “firepower.”

What about the countries that are still outside of the deal? “We don’t care, actually,” Saint-Amans said. “We don’t need them.” He explained that what the deal needed to succeed was the big countries, and they got agreement from the “critical mass” of such countries. He is not concerned about the holdouts creating new tax havens that would evade the system.

“Tell your CFOs, your CEOs, that the game has changed and that the tax function should be boring. It’s no longer a profit center. So just tell your tax colleagues that it’s going to be boring. They will have to comply to pay the tax. And that’s done. They will stop playing with very sophisticated engineering.”

After implementation, if successful, where will multilateral tax efforts focus going forward?

“The next big thing for the next 10 years is going to be the taxation of carbon. I mean climate change is the thing that collectively we need to address. It’s a global issue, which requires a global solution.” For this task, he added, “we are just starting.”

However, Saint-Amans noted, “at a time where multilateralism is not great … tax, interestingly, is a bridge.”