(press release) The ifo President Clemens Fuest supports the OECD’s plans for a minimum effective corporate tax rate at international level. “It would limit unwanted tax avoidance arising from companies’ ability to shift their profits. At the same time, double taxation must be avoided,” writes Fuest in a paper that he co-authored with Mathieu Parenti and Farid Toubal for the French Council of Economic Analysis, the advisory body to French Prime Minister Edouard Philippe.
The authors recommend that a company should be deemed to have a taxable business even where its presence is only “digital.” “This should be a key feature of future international taxation rules,” Fuest says.
The OECD is currently suggesting that profits should be taxed by means of “residual profit allocation” in the future – not only in production countries, but also in destination markets. Fuest and his co-authors reject this method, arguing that it is too complicated. Instead, they propose allocating a fraction of overall global profits to the market countries so that they can be taxed there. However, Germany would lose tax revenue under this regulation. If the reallocation is limited to residual profits (the share of profits that exceeds 12 percent return on capital), the tax revenue losses for Germany are small (0.1 percent of income tax revenue).
Fuest, Parenti, and Toubal are also in favor of clearer rules for companies’ country-by-country reporting. Companies would not necessarily have to publish this data, but they should at least make it available for statistical analysis.
Co-author Parenti works at the Université Libre de Bruxelles (ULB) and the Centre for Economic Policy Research (CEPR); Toubal works at the École normale supérieure (ENS) in Paris-Saclay and is a member of the Conseil d’analyse économique (CAE – French Council of Economic Analysis).
Paper (in English): “International Corporate Taxation: What Reforms? What Impact?” by Clemens Fuest, Mathieu Parenti, and Farid Toubal, in: Les notes du conseil d’analyse économique, no. 54, November 2019