July 17 – International corporate tax rules were introduced a century ago with the good intention of protecting multinational corporations from being exploited and double taxed by unscrupulous countries.
But in the age of globalization and ever more powerful corporations, these rules no longer work. Instead, corporate goliaths pit countries against each other to find out where there is little or no corporate taxation and hide money in offshore accounts under dubious business structures.
US Treasury Secretary Janet Yellen correctly describes the result as “a 30-year race to the bottom on corporate tax rates”.
For this reason, President Joe Biden has pushed for a global corporation tax agreement of at least 15% to curb global corporate tax abuse.
He finds broad support for the idea, also in our major competitor countries. Last week, 130 nations joined the global business concept, including China, Russia and India.
This is good news, but Biden’s ambitious plan has a long and hard road to go.
There are many flaws in the original proposal that need to be distinguished, including whether it wrongly provides for exceptions for some industries. The question also arises as to whether all the acceding countries will have the political will to approve and enforce a final plan.
Still, the fact that Biden’s plan achieved this level of initial support is impressive.
The concept of a global corporate tax has received so much support from such a diverse group of countries because they understand that the balance of power has shifted from nations to multinationals playing countries off against each other. This has denied state coffers around the world the tax revenue they needed.
The largest multinationals have been paying too little tax for too long. The global corporate tax rate is not going to make this inequality go away, but it would go a long way towards improving it.