A global minimum corporate tax is an important step toward fairness
Posted on June 7, 2021 in Governance Policy Context
Source: TheStar.com — Authors: Star Editorial Board
TheStar.com – Opinion/Editorials
June 7. 2021. Star Editorial Board
A few things have become awfully clear after 15 months of a global pandemic:
- The costs have been enormous, and governments need a lot more tax revenue to pay for them. Taking on more debt is fine for a while, but there are limits.
- Many have suffered during COVID-19, but others have done very well. The latter include the super-rich and global companies that have gamed the international tax system to reduce their tax bills to, in some cases, zero.
Now, finally, some of the most powerful countries in the world are taking steps to address both these realities.
At a meeting over the weekend, finance ministers from the G7 (the so-called “rich man’s club” of the United States, Britain, Germany, France, Italy, Japan and Canada) agreed on a plan to stop big international companies from dodging taxes by shifting their profits to tax havens.
The deal is just one step toward forcing the digital giants like Amazon, Google and Facebook from effectively hiding their profits and starving governments of much-needed tax revenue.
But it’s an important one. It could mean billions for governments to pay those COVID costs, and for other badly needed programs. Letting some of the richest global corporations pay little or nothing means the rest of us are on the hook for even more.
The driving force behind the proposal for a minimum global corporate tax is the Biden administration. Treasury Secretary Janet Yellen first raised the idea in April, saying it was time to end the global “race to the bottom” on corporate taxes.
At the time, the U.S. floated the idea of a minimum corporate tax of 21 per cent. It then watered down its proposal to 15 per cent, and that’s the number that the G7 has now endorsed as a tax floor for international companies.
The problem arises because the digital giants operate all over the world and don’t rely on old-style bricks-and-mortar installations that can’t be moved.
They can shift their profits around to various subsidiaries and declare them in jurisdictions where corporate tax levels are kept at to a minimum. That can mean outright tax havens like the Cayman Islands, or countries that have chosen low corporate rates to encourage investments, such as Ireland and Hungary.
The result of all this creative accounting is that vast amounts of corporate revenue is going untaxed or very lightly taxed. One estimate puts it at $245 billion U.S. a year; another at closer to $500 billion.
For Canada alone, according to one calculation, a minimum corporate tax of 21 per cent would mean an additional $11 billion in federal revenue a year. (The G7 proposal of 15 per cent would obviously bring in less, but it would still be substantial.)
And aside from the specific figures, there’s an important principle at stake: those who can pay the most should pay the most. Certainly, they shouldn’t pay nothing, or next door to it. That just leaves everyone else, those of us who can’t avoid taxes, paying more.
The poster child for playing the system is Amazon, which managed to pay zero U.S. tax in 2018. It’s paid a bit more lately, but still less than half the U.S. corporate tax rate of 21 per cent. Meanwhile it’s been one of the biggest COVID winners, increasing its world-wide pre-tax income by 73 per cent last year and seeing its stock price soar.
Companies like Amazon should be paying their fair share, and the Biden administration deserves applause for finally blowing the whistle on this decades-long rip-off.
The G7 declaration, however, is just a starting point. The whole idea of a minimum global tax is to prevent multinationals from tax-shopping, so it will be effective only to the extent that many countries agree to it.
The next step is to get the bigger G20 group on board, and then there’s the Organization for Economic Development and Cooperation, which has been conducting a “dialogue” on the issue involving more than 100 countries.
But the G7 has endorsed an important principle: everyone, including the biggest companies that have flourished during the pandemic, should pay their share. The free ride is over.
https://www.thestar.com/opinion/editorials/2021/06/07/a-global-minimum-corporate-tax-is-a-step-toward-fairness-and-canada-ought-to-get-on-board.html
Tags: budget, economy, globalization, ideology, jurisdiction, tax
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