Tax Observatory reveals that Portugal could raise €600 million this year if it taxed multinationals' profits at 25%.
Portugal could raise €600 million this year if it taxed multinationals’ profits at 25%, while the European Union (EU) would receive nearly €170 billion, a study by the newly created Tax Observatory reveals.
“There is a lot of revenue to be generated in Europe by collecting what we call the tax deficit of multinational companies – that is, the difference between what a company pays today in taxes and what it would have to pay if it were subject to a minimum tax in each country in which it operates – and if this minimum tax were 25%, we calculate that the European Union could receive 170 billion euros in additional tax revenue from corporate taxes per year,” Gabriel Zucman, director of the new EU Tax Observatory, tells Lusa news agency.
According to the French economist who will lead this independent observatory, “this would represent a 50% increase over what [the EU] currently collects from corporate tax revenues”.
“Today, corporate tax revenues in the EU are around €340 billion and would increase to over €500 billion” per year with a 25% tax on multinationals’ profits, he added.
Gabriel Zucman notes that this is “an increase of about 1.2% of GDP [gross domestic product] in tax collection in the EU”, stressing it is “a lot of money in extra revenue” that could be used “as a contribution” to tackle the crisis generated by the Covid-19 pandemic.
On the launch day of the EU’s Tax Observatory, the structure releases this study on “Collecting the tax gap of multinational companies”, with simulations on future collection on the profits of these companies – such as technology ‘giants’ – which currently domicile their revenues where it is most favourable to them in tax terms.
The organisation states in the report that a 25% tax on the profits of multinationals would be equivalent to €167.8 billion in tax revenue, describing this as a “powerful and realistic instrument” to “generate new revenue in a fair and sustainable way”.
The document, which Lusa had access to, indicates that Portugal could raise €600 million this year if it applied this 25% tax on the profits of multinationals operating in the country, with the highest tax revenues being collected by countries such as Germany (29.1 billion) and France (26.1 billion).
For several years, the Organisation for Economic Cooperation and Development (OECD) has been discussing a proposal on taxes adapted to a globalised and digitalised economy, with a view to demanding taxes from multinationals.
Many countries have even been defending a global minimum tax of 25% on companies, but at the end of May the US administration proposed a rate of at least 15%, showing itself to be favourable to a global agreement.
In these statements to Lusa, Gabriel Zucman classified the rate proposed by the United States as “very low and without justification”, hoping for a consensus around the 25% tax.
In the report, the EU Tax Observatory explains that “companies such as Shell, Iberdrola and Allianz […] would also have to pay 35-50% more in taxes if they were subject to a minimum tax of 25%”.
Other scenarios are also considered in the study and, “with a minimum rate of 21%, the European Union would collect around €100 billion in 2021” from multinationals, while “15% would reduce revenues by half that amount”.
This equates to €98 billion and €48.3 billion in tax revenue for the EU respectively, and with both rates (21% and 15%), Portugal would collect close to €100 million.
Faced with an “incomplete international agreement”, the observatory estimates that each country will cover its own multinationals and “a further part of the tax deficit of multinationals incorporated outside the European Union, based on the destination of sales”.
The organisation also refers to the possibility of one country going it alone and ahead of the others in this charge, noting that, in such a scenario, that member state “would encourage other countries” to do so.
In mid-May, in an interview with Lusa in Brussels, the European Commissioner for the Economy, Paolo Gentiloni, announced that the EU executive will present its proposal for taxing the digital economy “in late June, early July”, stressing that the EU’s priority remains “a global agreement” at the OECD.
At the request of the European Parliament, the European Commission opened applications for the creation of this EU Tax Observatory, with a budget of €1.2 million for the period 2020/2021, which was won by the Paris School of Economics, with Gabriel Zucman as head.