The financial sector will be subject to the minimum tax rate of 15 % under pillar 2 of the reform. On the other hand, it will escape Pillar 1, which is intended to ensure a fairer distribution of taxing rights. Unregulated activities, such as fintechs, should not benefit from exemptions.
The G20 is due to ratify the OECD's tax reform for multinational companies at the end of the week, French Economy Minister Bruno Le Maire said on Tuesday. After the G7 agreement at the beginning of June, the finance ministers of the 20 major economies will meet on Friday and Saturday in Venice, Italy.
The deadline was then set for October to finalise the outstanding technical points, with a view to effective implementation in 2023. The application of this small revolution will require a European directive that France will be able to steer during its presidency of the EU in the first half of 2022.
Many voices
The impact of the reform on the financial sector remains uncertain, while several exemptions that may be granted are still under discussion. At this stage, there are different views. In the British press, we sometimes read that the City banks will be excluded from the reform, thanks to the successful negotiations of Rishi Sunak, the Chancellor of the Exchequer. In Paris, we also hear that the financial sector as a whole is not affected.
Let us recall that the global agreement "aims to ensure that large multinational enterprises (MNEs) pay taxes where they operate and generate profits, while enhancing legal certainty and stability in the international tax system", summarizes the OECD.
Minimum tax of 15 %
In fact, the new global minimum tax rules of 15 % will apply to financial services, whether regulated or not. This is the second pillar of the reform, designed to limit tax competition between countries.
The exemptions from which the financial sector should benefit concern only the first part, known as pillar 1.
"Pillar 1 is intended to compel multinationals whose global operating margin exceeds 10 % to allocate 20 % of their global profits differently, i.e. no longer only where they are established via their headquarters, subsidiaries and branches, but where they conduct business and make profits", explains Bertrand Dussert, partner at Winston & Strawn. If this point concerns digital giants in particular, it should also apply to 5 or 10 French multinationals, but not to the big banks, which are therefore excluded.
Discussions since 2019
"The Pillar 1 exclusion for regulated financial services has been discussed since 2019. This is because the regulations that apply to regulated financial firms provide that their profits are already connected to the places where they operate and serve their customers. Reallocating tax rights on their profits could interfere with the operation of existing regulations", explains one of the stakeholders in the discussions.
On the other hand, this exclusion will not apply to unregulated or less regulated parts of the financial sector, such as Fintechs, although the precise details are yet to be defined.