Will international tax changes move the stock markets? – opinion

Here’s an item that won’t affect your tax bill unless it’s Google, Facebook, Apple, or one of the world’s top 100 companies. But it can affect your pocketbook if you invest in them or your pension fund.

The article is a joint announcement on October 21 by the governments of the US, UK, France, Italy, Spain and Austria (with the soft title: “Joint Declaration on a Commitment on a Transitional Approach to Unilateral Measures existing during the previous provisional period Pillar 1 is in force “.

If you missed it, one of the world’s leading financial magazines lost it too.

Background – a new tax is born – DST

The administration of US President Joe Biden is rushing to finalize a package of OECD income tax proposals, known as the Two Pillar Package. It would help pay for an investment in US infrastructure of $ 2-3 trillion. In short, a lot of money.

United States President Joe Biden signs the American Rescue Plan, a package of economic aid measures to respond to the impact of the coronavirus disease (COVID-19) pandemic, inside the Oval Office of the White House in Washington, United States, on March 11, 2021. (Credit: REUTERS / TOM BRENNER)

Pillar 1 proposes to transfer part of the taxable income of the large multinationals to the country where the clients are located if their annual global income exceeds 20,000 million euros. Pillar 2 proposes a global minimum corporate income tax rate of 15%. Currently, 136 countries have enrolled in the OECD’s two-pillar package.

But there is an obstacle for the two pillars. Several countries have gone ahead and started imposing the tax on digital services, or will soon. This led the Biden administration to threaten trade tariff sanctions on DST countries.

Daylight Saving Time is considered bad because it is a second tax on Internet sales in addition to VAT / sales tax.

Worse still, VAT and sales tax generally cannot be credited against income tax in any country, resulting in double or triple taxes.

It’s not Biden’s fault he was late for the OECD’s two-pillar party; It emerged last year and the administration of US President Donald Trump suspended consideration of the package indefinitely. This delay led many countries to adopt a DST tax regime “unilaterally”.

The imposed or proposed DST rates (subject to detailed rules, of course) in the countries covered by the joint declaration are UK 2%, France 3%, Italy 3%, Spain 3%, Austria 5%.

DST rates in other countries not covered by the joint declaration include: India 2% -6%, Turkey 7.5%, Belgium 3%, Canada 3%, Czech Republic 5%, Hungary 7.5%.

What the joint statement says

The six countries agreed to a pledge to avoid US trade sanctions. Assuming most countries adopt Pillar 1 by 2024 instead of DST, the additional corporate income tax caused by Pillar 1 in the first year can be credited against DST until DST is removed. But not all of the DST, because a formula restricts the removal of the DST to the DST in 2022 and 2023 minus double the Pillar 1 tax of the first year. Go find out.

Expected effect

We solved it. We analyzed some numbers by simulating the rules of joint returns and made some, hopefully, reasonable assumptions.

We predict that affected multinationals may be tempted to undertake some tax planning that may affect their reported earnings for years to come. And economic theory tells us that changes in reported earnings affect stock market share prices many times, for example 15 times if the price / earnings (P / E) ratio is 15.

Therefore, these tax changes can move the stock markets for years to come.


The joint statement leaves many questions open, for example:

Why did six governments agree to such a volatile fiscal mechanism? Will it happen?

Will your investments fluctuate? Or will you take steps to benefit from all of this?

Once DST is repealed in a country, will your government continue to refund the removed DST?

What about the countries that are not part of the joint declaration? Double or triple taxation?

They will be smaller multinationals with global annual revenues of less than € 20 billion. get hit by double or triple taxes?

Extreme complexity.

Multilateral tax treaties can be used to accelerate the implementation of all these measures and to detail more detailed aspects. So far, nothing has been published.

Taxes without representation?

Disputes are likely, the dispute resolution procedure in the 136 countries is still unclear.

What do you need?

If public officials in an ivory tower drafted the joint statement, prepare as you would for the Tower of Babel. Consult both your tax advisor and your investment advisor.

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As always, consult experienced tax and other advisers in each country at an early stage in specific cases.

The writer is a certified public accountant and tax specialist with Harris Horoviz Consulting & Tax Ltd.


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