PARIS — French President Emmanuel Macron is selling an upcoming deal on global corporate taxation as a way to make sure global companies such as McKinsey pay their fair share of tax amid growing controversy over his own use of the leading consultancy firm.
But as EU finance ministers gather in Luxembourg Tuesday to discuss the file, there is little chance it will prevent such controversies in the future, as the upcoming reform is unlikely to have an effect on how McKinsey is taxed in France.
Macron’s government has been under fire for weeks for its use of pricey consulting services, including leading firm McKinsey. The latter also stands accused of tax avoidance, with a parliamentary report by opposition lawmakers alleging the firm did not pay corporate tax in France for at least 10 years – an allegation the American consultancy company rejects.
Just six days ahead of the French presidential election’s first round Sunday, Macron tried to use the upcoming reform of international corporate taxation to shield his government from opposition attacks, stressing that France has been pushing hard for a global overhaul of tax rules so that companies such as McKinsey will have to pay taxes where they make profits.
“Under the French presidency of the [Council of the] European Union, we will pass [new rules on] minimum taxation. As soon as it passes, a company like McKinsey will have to pay taxes in France,” Macron said Monday morning in a radio interview. If McKinsey takes advantage of existing fiscal rules, “we must change them,” he said, referring to the file.
But his defense line raises some doubts as the scope of the reform currently being discussed at EU level wouldn’t cover a firm such as McKinsey.
A big reform of global tax rules has been on Macron’s agenda since his election in 2017 and it became one of the top priorities of France’s rotating presidency of the Council of the EU this year. For Paris, the main goal was to make sure that American tech giants such as Google or Facebook would pay a fair share of taxes in Europe. After years of negotiations, the scope of the reform went beyond Big Tech to cover global corporate giants.
EU finance ministers are meeting precisely to find an agreement on a directive establishing 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 try again to strike a compromise on a file he has been pushing for years.
A French economy ministry official said Monday that Paris has managed to strike a consensus on all the 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 only one of the two “pillars” of a wider global tax reform, which is being discussed at the OECD and was endorsed by G20 countries last fall. The other chapter of the reform – the so-called Pillar 1 – focuses on taxing part of multinationals’ profits in the countries where they sell their services and goods – a measure which could have an impact in the McKinsey case.
But, according to experts and fair taxation campaigners, neither of these two reforms would prevent McKinsey from paying as little tax as possible in France.
Macron did not make a distinction between the two different chapters of the reform, but suggested that the minimum tax rate – which is the only measure currently being debated at the EU level under France’s Council presidency – would stop tax optimization by firms like McKinsey, which use so-called transfer pricing mechanisms to redirect profits to other countries with lower tax rates.
Nongovernmental organizations and Macron’s opponents were quick to challenge Macron’s claim, noting that the agreement on a global minimum tax rate would have no effect on the amount of tax McKinsey will pay in France.
“Minimum tax will not change anything” in the McKinsey case, said Quentin Parrinello, a tax justice campaigner at NGO Oxfam. “The issue is not about taxing at 15 percent, it is about where profits are located. This has absolutely nothing to do with it,” he said.
The Pillar 1 reforms could in principle have an impact on cases such as McKinsey’s because it would require that the world’s biggest firms pay tax where they operate, not where they’re based.
But McKinsey would not fall under these new rules, noted Mona Baraké, a scholar at the EU Tax Observatory, a research center of the Paris School of Economics.
The text endorsed by OECD countries only targets companies with annual revenue of at least $20 billion and a profit margin of 10 percent. McKinsey’s profits in 2020 were around $10.6 billion, well below the threshold.
In addition, the implementation of this part of the reform will take much longer as countries will have to conclude and ratify an international agreement, which will likely face opposition at the domestic level, for instance by U.S. lawmakers.
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