Global Tax Deal pays for the U.S. but not the rest
Thanks to the Pandora Papers, I haven’t got round to writing about the Global Tax Deal yet, which is bad because I’m two weeks late, but also good because it has allowed some of the confusion to abate and for me to get a bit of a sense of what everyone’s signed up to.
In case you too have been distracted by other priorities, the Deal is designed to stop the pernicious “race to the bottom” dynamic, in which countries have competed for multinationals’ attentions by lowering taxes. It establishes a floor of 15% below which taxes won’t fall (for big companies). It also ensures the biggest companies pay more of their taxes where they earn money, rather than where they report profits.
It’s encouraging, but don’t breathe out just yet. There’s still a lot of obstacles to circumvent before we can say whether it will re-empower democracies in their decades-long retreat before the oligarchs that control the world’s biggest companies.
- “Prior efforts at international tax reconciliation by the League of Nations, the United Nations and the OECD have taken the form of voluntary guidelines and model treaties. Even those multilateral projects took years to conclude,” writes former Bulgarian finance minister and senior World Bank official Simeon Djankov in this admirably clear blog post.
The problem is that the underlying dynamic that drove the race to the bottom has not disappeared: (almost) everyone wants companies to pay more in taxes, but (almost) everyone also wants money for their own treasury, and not a different country’s. The tension between these two desires is why all previous efforts to update international taxation policy have failed.