The French Council of Economic Analysis concluded in its study on the effects of the proposed global digital tax plans of the OECD that the increase in corporate tax revenues would be small for France, Germany, the US and China. The French Council has an advisory role to the French government and performed a simulation based on the OECD digital tax proposals.
The current tax rules date back to the 1920s and are no longer sufficient to ensure a fair allocation of taxing rights in this digital era. Therefore, earlier this year, the Inclusive Framework issued a Policy Note, thereby grouping the proposals into two pillars. Pillar One focuses on the allocation of taxing rights and seeks to undertake a coherent and concurrent review of the profit allocation and nexus rules. Pillar One covers the “user participation”, “marketing intangibles”, and “significant economic presence” proposals. It intends to entail solutions that go beyond the arm’s length principle. Pillar Two explores issues and design options in connection with the development of a co-ordinated set of rules. The four component of this proposal are: an income inclusion, an undertaxed payments rule, a switch-over rule and subject to tax rule. These rules would be implemented through changes to domestic law and tax treaties and would incorporate a co-ordination or ordering rule to avoid the risk of double taxation that might otherwise arise where more than one jurisdiction sought to apply these rules to the same structure or arrangement.
The French Council of Economic Analysis concluded that the proposed changes in international corporation tax rules would result in bureaucratic complexities and would not lead to a substantial increase in corporate tax receipts. For France and Germany, there would only be a 0.3 percent increase in corporate tax revenues. Indeed, the countries would gain from being able to tax parts of the sales of foreign tech giants, but at the same time would lose parts of their right to tax their domestic giants.
The OECD is still working on its analysis, but expects the proposals to have a bigger impact on the tax revenues of large European countries, the US and China. In addition, it expects heavier losses in tax havens.