Canada is one of 130 countries that have signed an agreement to establish a minimum global corporate tax rate.
The agreement negotiated by the Organization for Economic Co-operation and Development consists of two parts.
First, it would set a floor on the minimum corporate tax that each country can levy. With 15 percent pressure should be exerted on so-called tax havens such as Bermuda, Ireland, the Cayman Islands and the British Virgin Islands.
These countries maintain very low tax rates to attract offshore developments. In this way, they allow corporate giants to avoid their fair share. They are also depriving other nations of investment within their own shores.
Second, the agreement allows signatory states to tax companies that do not have a physical presence in their territory but sell goods and services there.
The goals include social media giants such as the so-called “Silicon Six”. It is alleged that Amazon, Apple, Facebook, Google, Microsoft and Netflix paid $ 155 billion less than local tax rates would have required in all of their worldwide territories between 2010 and 2019.
The possibility of tax evasion by large corporations is not in itself disputed. In the US, 60 of the largest companies paid no federal income tax at all in 2018. Some even got discounts.
The Canadian Revenue Service reported that Canadian companies avoided $ 11.4 billion in taxes that they should have paid in 2014.
And Parliament’s Budget Commissioner has calculated that Canadian firms transferred about $ 1.6 trillion to low-tax countries in 2018. If only 10 percent of that money was spent avoiding taxes, the cost to the federal government would have been on the order of $ 25 billion. The provinces have also lost billions in this way.
At first glance, the OECD deal makes sense. There is no question that large corporations have found several ways to pay their fair share.
Understandably, some of these companies disagree. They deny the amounts in question and insist that they are not doing anything illegal.
Put simply, her answer is: “Hands up if you want to pay more than what the tax legislation prescribes.”
The other side of this argument is that if the agreement is sealed, the signatory states will give up part of their sovereignty. Maybe 15 percent is fair ground for now.
But what if the OECD raises it significantly higher in the future? That could happen if an international consensus emerges, for example to enrich international aid programs.
That may be an admirable goal, but shouldn’t such decisions be made by national parliaments, not international forums like the OECD?
We recently saw such a development. The European Union is considering a proposal to tax imported goods on the basis of the greenhouse gases emitted in their manufacture.
This would give the EU the power to extend its taxation powers to any corner of the world based on policy objectives set without the involvement of the countries concerned.
A balanced view of this new approach to global taxation would be to welcome an end to the shameless trickery currently practiced by large international corporations.
But it would also require a capping mechanism. It is a historical fact that new tax systems tend to start at the lower end of the scale when they are introduced. But they grow over time.
Corporate income tax was supposedly introduced in Canada as a temporary measure to pay for WWI. Of course, they became permanent and increased over time.
However, designing such a limiting mechanism will not be an easy matter. With 130 countries at the negotiating table, the voice of a single member will be rather muffled.
The power to tax is perhaps the most powerful prerogative of governments. We need to be careful how much of that power we give up.
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