For the first time on a couple of years, the leaders of the Group of Seven economics will meet in person — at least at a social distance — in Cornwall in the south of England for a two-day conference. That they will approve a deal on corporate tax reached last weekend by their respective finance ministers. That is sure as the other sure things in life — death and taxes. But the deal spelling the death of low corporate tax regimes around the world that are used by big tech companies in particular — that is not such a sure thing.
The G7 want to set a global minimum 15 per cent corporation tax rate and reform taxation for the digital age — and force the likes of Amazon, Apple, Microsoft, Facebook and Google to pay more tax where they operate and to curb their ability to shift profits to low-tax jurisdictions.
But let’s face it too, the timing is significant. Coronavirus has ripped a giant gaping hole in government finances the world over. The big tech companies — all of whom have annual revenues larger than the GDP of a lot of countries who would never make the list of G77 nations never mind the G7 — are easy targets.
Being an easy target is one thing, hitting it another. And with legions of corporate and tax lawyers at their disposal — the best that big budgets and big tech can muster — collecting anything near a corporate tax rate of 15 per cent will be nigh impossible.
Politically, the leadership of the G7 are ecstatic. Germany’s minister for finance Olaf Scholz, for example, described it as a “tax revolution”, adding “this is very good news for tax justice and solidarity and bad news for tax havens around the world. Corporations, he gushed, will no longer be able to evade their tax liability by skilfully shifting their profits to low-tax countries.
But if death and taxes are sure things, so too is the reality that the more people or companies earn, the less taxes they pay — if only because they can afford to take whatever measures are legal anywhere to avoid paying them.
Supporters hope the corporate tax accord will build momentum for a global deal at the Organisation for Economic Co-operation and Development (OECD) and conclude years of negotiations over how to divide the tax revenues of digital companies and multinationals.
The 139 countries of the OECD had been debating this for years and haven’t reached any deal — simply because nations such as Ireland, Cyprus, the Baltic nations and Hungary have based their growth models on attracting multinationals to their shores with the promise of lower corporate taxes — the Irish rate is 12.5 per cent. And the tech companies use complex holding and subsidiary corporate structures to move revenues around the world. One corporate subsidiary of Microsoft in Ireland, for example, employees 2,000. Another, which deals with all of those monthly subscriptions from hundreds of millions of subscribers the world over and had annual revenues in the 2020 tax year worth two-thirds of Ireland’s GDP alone, has no employees and its Irish subsidiary is registered at a Dublin lawyer’s office. Those profits are reported to another Microsoft subsidiary based in Bermuda — which has no corporate taxes.
Is it any wonder, pending his divorce agreement, Bill Gates is one of the world’s richest men? These are the types of corporate shenanigans the G7 would like to stop with their corporate tax agreement — which seems like a pretty blunt instrument to use against such a complex global system of corporate governance structures purposely designed and legislated by offshore havens to protect the wealthy and their hard-earned and highly liquid assets.
The proposed G7 deal has two main parts.
First it would mean the biggest multinationals would pay some tax where they sold their services and not just where they have their headquarters.
This is a fundamental change in how tax is paid and will give taxing rights to countries in which the largest multinationals make sales on 20 per cent of their profits, once the margin exceeds a minimum level.
Secondly there is a proposed global minimum tax rate which would apply to multinationals of “at least” 15 per cent. Again, this is a major reform, which — if the US gets its way — will be accompanied by measures to put pressure on countries to comply. Countries would be free to charge a higher rate — but under the deal a recommended minimum would be set.
The big players usually get their way and the US is pushing hard for a deal at the OECD.
The proposals will be discussed at a wider group of the so-called G20 countries in Venice in July and then among all OECD countries. There is a lot of detail still to be agreed, and this deal is not yet “done.” But agreement now looks more likely — but there is a difference between more likely and getting it done.
Even before that rubber stamp is to be applied, the UK, which championed the deal in the first instance, is now seeking to exclude the City of London’s financial services companies from the corporate tax overhaul.
The British finance minister, Rishi Sunak, is concerned that under a version of the plan put forward by the US president — which involves redistributing the profits of the world’s 100 largest businesses will be joined by banks that he says already pay a fair share of tax.
The impact of Joe Biden’s proposal could prove to be a significant deterrent to banks running many of their operations from London, compounding the impact of Brexit that resulted in a shift of financial trading to Amsterdam.
If there’s a lesson here, it is that no one likes paying taxes. Those with money move it to suit. Those who don’t, pay. And that’s a sure thing.