Macron uses global tax reform to bypass ‘McKinseygate’ ahead of election – POLITICO

PARIS — French President Emmanuel Macron is selling a forthcoming deal on global corporate taxation to ensure global companies like McKinsey pay their fair share of taxes amid growing controversy over his own use of the leading consultancy.

But when EU finance ministers meet in Luxembourg on Tuesday to discuss the dossier, there is little chance of preventing such controversy in the future, as the forthcoming reform is unlikely to affect how McKinsey is taxed in France.

Macron’s government has been under fire for weeks for using expensive consulting services, including leading firm McKinsey. The latter is also accused of tax avoidance, with a parliamentary report by opposition lawmakers claiming the firm has not paid corporate tax in France for at least 10 years – a claim by the American consultancy Rejects.

Just six days before Sunday’s first round of French presidential elections, Macron sought to use forthcoming reform of international corporate taxation to shield his government from opposition attacks, stressing that France had been pushing hard for a global overhaul of tax rules in order to do so Companies like da McKinsey have to pay taxes where they make profits.

“Under the French Presidency of the [Council of the] European Union, we will survive [new rules on] minimum taxation. Once it’s over, a company like McKinsey will have to pay taxes in France,” Macron said called Monday morning in a radio interview. If McKinsey is exploiting the existing fiscal rules, “we have to change them,” he said, referring to the filing.

However, his line of defense raises some doubts as the scope of the reform currently being discussed at EU level would not cover a firm like McKinsey.

A major reform of global tax rules has been on Macron’s agenda since his election in 2017, and has become a top priority of France’s rotating EU presidency this year. For Paris, the main concern was to ensure that American tech giants like Google and Facebook pay their fair share of taxes in Europe. After years of negotiations, the scope of the reform expanded beyond Big Tech to include global corporate giants.

EU finance ministers are now meeting to reach agreement on a directive setting a global minimum corporate tax rate of 15 percent across the bloc. After failing to find a compromise last month, France’s Economy Minister Bruno Le Maire, who is chairing the meeting, will again try to find a compromise on a dossier he has been pushing for years.

An official at France’s Economy Ministry said Monday Paris had managed to reach a consensus on all technical aspects of the text, but also hinted that some countries could still try to block it for other political reasons.

Easier said than done

The minimum tax rate is just one of the two “pillars” of a broader global tax reform being discussed at the OECD and endorsed by the G20 countries last fall. The other chapter of the reform – the so-called 1st pillar – focuses on the taxation of a part the profits of multinational companies in the countries where they sell their services and goods – a measure that could have repercussions in the McKinsey case.

But according to experts and advocates of fair taxation, neither of these two reforms would prevent McKinsey from paying as little tax as possible in France.

Macron made no distinction between the two different chapters of the reform, but did hint that the minimum tax rate – the only measure currently being discussed at EU level under the French presidency – would stop tax optimization from companies like McKinsey using so-called transfer pricing mechanisms to Diverting profits to other countries with lower tax rates.

non-governmental organizations etc Macron’s opponent were quick to question Macron’s claim, noting that the deal on a global minimum tax rate would have no impact on the level of taxes McKinsey will pay in France.

“The minimum tax won’t change anything” in the McKinsey case, said Quentin Parrinello, a tax justice activist at the NGO Oxfam. “It’s not about 15 percent taxation, it’s about where the profits are. It has absolutely nothing to do with it,” he said.

Pillar 1 reform could, in principle, affect cases like McKinsey because it would require the world’s largest companies to pay taxes where they operate rather than where they are based.

But McKinsey would not fall under these new rules, noted Mona Baraké, a researcher at the EU Tax Observatory, a research center at the Paris School of Economics.

The text endorsed by OECD countries is only aimed at companies with annual sales of at least US$20 billion and a profit margin of 10 percent. McKinsey’s earnings in 2020 became around $10.6 billion, well below the threshold.

Additionally, this part of the reform will take much longer to implement as countries will need to enter into and ratify an international agreement, which is likely to face opposition at the national level, such as from US lawmakers.

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