Business-hungry, the world is coming for you
Global governments have made a long-sought breakthrough in tax reform that imposes a minimum tax rate of 15 percent on the world’s largest corporations.
This measure has a good chance of finally easing the practice among the world’s most powerful and profitable companies of establishing themselves for tax purposes in the least taxed jurisdictions in the world.
This practice, decried as “a race to the bottom”, is believed to cost governments at least $ 300 billion a year in lost revenue.
Equally important, the deal aims to reallocate corporate tax revenues, which could amount to more than $ 180 billion in additional tax revenues per year, to the countries in which companies generate their profits, even if they do not. ‘are not physically present there.
This biggest overhaul of global taxation in generations, spearheaded by the Organization for Economic Co-operation and Development (OECD), was revived after negotiations repeatedly failed. It has gained momentum because of the pandemic government revenue losses and today’s high level of antipathy towards big business.
In a recent essay co-authored by Nobel laureate in economics Joseph Stiglitz, the Independent Commission for the Reform of International Business Taxation, a group of progressive economists of which Stiglitz is a member, stated that “there is has many reasons for the growing fury against the corporate sector.
“Consider the 2008 financial crisis, the opioid epidemic, and the exploratory and manipulative behavior of digital monopolies such as Amazon and Facebook. “
This is the shortlist, of course. It omits, for example, the oil industry’s complicity with climate crisis deniers, the many leading companies that have allegedly paid no taxes for years, and the mind-boggling daring of Wells Fargo & Co. in opening up new businesses. fake accounts on behalf of millions of people. unsuspecting customers and paying them fees.
The landmark deal comes at a time when large companies are under intense pressure to share their profits more equitably.
For example, Canada and the 135 other countries and jurisdictions that accepted the deal on Oct. 8, representing more than 90 percent of the global economy, want to collect a larger chunk of the record profits than the so-called companies ” pandemic winner ”amassed as many small businesses were pushed to the wall by lockdown restrictions.
In the recent federal election, Prime Minister Justin Trudeau campaigned on the wish to increase the pandemic-era profit taxes accumulated by Canada’s banks and insurers.
Meanwhile, the International Monetary Fund (IMF) wants the world’s biggest emitters of greenhouse gases to pay a high price for carbon to meet the goals of the Paris climate agreement.
And G20 finance ministers are under pressure from prominent economists to impose a tax on global financial transactions that they say would bring in around $ 125 billion a year. Nine G20 countries, including the UK, have already introduced a Financial Transaction Tax (FTT).
Other G20 countries could follow suit, needing funds to cover their pandemic costs, spur economic recovery and more substantially fund efforts to tackle the climate crisis.
The Global Tax Reform Treaty was created in the same spirit as these initiatives. It is expected to be approved at the end of this month by G20 leaders at a summit in Rome.
Just before the October 8 deal, Ireland, a signatory to the treaty, increased its corporate tax rate to 15 percent from 12.5 percent. And Hungary is raising its rate to the new low of a floor of 9 percent.
Both countries, like many others, have long used very favorable tax rates to attract business investment.
Welcoming the treaty, which is expected to come into effect in 2023, as a victory for tax fairness, US Treasury Secretary Janet Yellen said the deal means “virtually the entire world economy has decided to put an end to the race to the bottom of corporate taxation “.
The deal also discourages Big Tech and other industrial sectors from avoiding taxes by guaranteeing huge amounts of their profits overseas. They will now be subject to the 15 percent minimum virtually worldwide.
Lest this appear to be a tax grab of historic proportions, it largely shifts existing profits, especially to low-income countries that generate profits for multinationals but see little or no tax revenue from that income.
This is the goal, although the most important details of how it would be done have yet to be worked out.
Big Tech is thrilled with a treaty provision that effectively bans the digital service taxes (DST) that several countries have imposed. Facebook Inc., the Google arm of Alphabet Inc., and Netflix Inc. were among the digital companies concerned that domestic DSTs could proliferate.
Instead, Ottawa, for its part, said this week that it would delay, and potentially abandon, a planned DST that it estimates would bring in about $ 3.5 billion in government revenue over five years. This turnaround, he said, was brought about by his agreement to the new treaty.
A question arises about the impact of the treaty on Canada’s bill to force digital media companies to fund more Canadian content and pay Canadian news organizations whose content appears on the feed. news from Facebook and other social media platforms.
Most experts are, however, convinced that an “exclusion” from the treaty may allow these demands of digital media companies to continue.
The rules of the World Trade Organization and the provisions of the Canada-United States-Mexico Agreement (ACCUM) provide exemptions for revenue-raising initiatives related to cultural industries.
The treaty is a work in progress. Ratification by dozens of countries will reveal real and perceived imperfections in the treaty.
For example, the 15 percent tax rate, which was required to get international agreement on the deal, is lower than that paid by most citizens of high-income countries. The United States has failed to ask for a rate of 21 percent, the current rate for U.S. corporations, and a rate that Biden is seeking to raise.
The new deal also allows companies to challenge in which countries they are told to pay taxes. This provision is reasonable. But the treaty assignment of the task of adjudicating disputes to specialist treaty arbitrators – members of what Stiglitz calls the “global tax avoidance industry” – is troubling. Equitable results would be better assured by the creation of an international tax court.
That said, the treaty, if ratified, would finally establish important principles on which to build.
For example, the agreed minimum tax may be increased over time. And concerns raised by Oxfam and others that the deal is not benefiting low-income countries enough, as it is supposed to, can be resolved once a basic treaty agreement has been ratified.
But already, the new treaty signals that a remarkable number of 136 countries and jurisdictions can agree on something, that the world’s disgust for unjustly obtained corporate profits must finally be addressed with concrete action.
While that doesn’t warn the greedy on corporate boards, the stage is set for much tougher measures against companies suffering from a corporate social responsibility deficit.