The World Needs a Fair Tax Deal, Not a G7-Money Grab

July 9, 2021, 7:01 AM

With much of the world still suffering from the pandemic, developing countries are in dire need of an economic boost that they aren’t going to get from the proposed global minimum tax.

Covid-19 has the potential to increase inequality in almost every country at once. Billionaire wealth is reaching astronomical levels. Austerity menaces. Developing countries’ domestic fiscal crises are accelerating―amid already the worst health worker shortage in history and crippling debt burdens.

It is in this unprecedented backdrop of crises that negotiations on a long-awaited global corporate tax deal, that could claw back essential revenues for countries worldwide, hold extraordinary significance.

The G7 group of nations last month agreed to back a global tax agreement, which the “Inclusive Framework” (IF) convened by the OECD endorsed last week. Now all eyes turn to the G20 group of economies, who will take a decision in Venice this week whether to support the deal.

The stakes could not be higher. The G7 and the OECD were quick to declare their efforts as historic. It is anything but. There are two fundamental problems with their proposal.

The first is their proposed 15% minimum corporate tax rate. It is simply far too low. It is based on the rates in place in notorious corporate tax havens such as Ireland and Singapore, effectively legitimizing and codifying some of the worst behavior. The reforms were meant to stop a decades-long “race to the bottom” on tax rates, but now risk accelerating this race and making 15% the new normal. The G7 supported the 15% rate, despite U.S. efforts to pursue a 21% rate and a much higher rate being needed to ensure corporations pay their fair share to fight inequality.

The second problem―equally as important―is the formula for who will benefit from such new revenues. It will not be those countries where multinationals are producing or making their sales and profits, including in their burgeoning middle-income markets, but the mainly G7 and EU nations where they are headquartered.

This deal is hardly cause for celebration. Martín Guzmán, finance minister of Argentina, notably a G20 member, criticized the proposal, as have some African countries. It is bad news for tax havens, but will fail to raise funds developing countries urgently need to save lives and ensure a fair and inclusive economic recovery from Covid-19.

The deal the G7 and the OECD want is one in which the G7 and EU will take home two-thirds of new cash that a new global minimum tax of 15% will bring in. The world’s poorest countries stand to receive less than 3%―despite being home to more than a third of the world’s population.

If you’re a woman street-seller in Kenya, a nurse in Bangladesh, or a small business on its knees, then this tax deal isn’t designed for you.

Let’s call this what it is: a rich-country money grab; one that Professor Thomas Piketty calls the “formalization of a real license to defraud for the most powerful economic players.”

Already the OECD agreement is being seen by some as an excuse to call for lowering domestic corporate tax rates―be it by big business in Australia to media in Denmark―risking a new race to the bottom.

We still need a reform that is fair, redistributive, and that raises sufficient and substantial additional revenues for developing countries.

The decision to endorse, or not, the OECD proposal was a false choice: we need, simply, a better deal. The cost of getting this wrong is too high: tax avoidance by multinationals results in global revenue losses of at least $240 billion each year.

If we are to defeat extraordinary inequality, we should be talking about where we need to get to. In the wake of World War II, leaders such as Franklin D. Roosevelt ensured corporations paid between 40% and 50% tax rates, which stayed for decades. This is the assertive ambition that we need to be truly able to boost investment in universal services and protections, in our nurses and our teachers, and in small businesses the world over.

The G20 must get the deal right this week. Succumbing to the G7 pressure would represent a colonial-style victory by the richest nations, dictating that most of the world’s nations agree to a deal counter to their interests. We need a minimum tax rate that reflects the top, not one that concretizes the bottom.

The deal on the table should at least reflect the recommendations of the Independent Commission for the Reform of International Corporate Taxation (ICRICT), which has called for at least a 25% minimum tax rate.

That would raise nearly $17 billion more per year for the world’s poorest countries than a 15% rate―enough to vaccinate 80% of their populations.

Revenues would double if the City of London and regulated financial sectors weren’t excluded.

And big offenders like Amazon shouldn’t be left off the hook, and countries should be allowed to move ahead with unilateral measures to tax corporations not covered by the tax deal.

Even that would be far from historic―but it would show that leaders are serious about ending the race to the bottom and starting the journey to the top.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Gabriela Bucher is executive director of Oxfam International.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.

To read more articles log in. To learn more about a subscription click here.