The G7 global minimum tax rate plan is fair and can work

The leaders of the richest industrialized countries in the world have held their first face-to-face G7 summit in more than a year. There is great enthusiasm as multilateralism seems to be back on the agenda.

Government leaders are eager to explore how to rebuild the global economy in a world ravaged by the COVID-19 pandemic. Boris Johnson, the British Prime Minister, spoke in his opening statement of “build back better, build back greener, build back fairer”.

The finance ministers’ proposal envisions an overall minimum tax rate of at least 15% on large international corporations. Countries would be allowed to levy a tax of at least 20 percent on corporate income above a 10 percent margin achieved in their jurisdictions.

This ends a transatlantic feud over taxing tech giants where they earn their money, rather than allowing them to pay minimal taxes in “friendly places” where they are headquartered and which offer them premium rates. lucrative taxation and other incentives.

The deal is a reaction to what US Treasury Secretary Janet Yellen and several of her European peers have called a race to the bottom in corporate tax rates. The average corporate tax rate was 40 percent in 1980 on a worldwide basis. Since then it has steadily declined to around 20 percent.

The Biden administration takes a very different line from the previous one, something that will be highlighted and can be a hindrance when the proposal has to go through a deeply divided Congress to be enacted.

The G20 is another obstacle to the proposed plan, which will be discussed in Venice at the G20 finance ministers meeting in July.

Politicians and pundits criticized the tax proposal for not being bold enough. French Finance Minister Bruno Le Maire said he believes the proposal is the starting point, not the end point – a statement that won’t do much to like it from those who find the proposal too ambitious.

Another criticism is that the proposal is only aimed at around 100 of the world’s largest companies. The 10 percent margin requirement hooks most of the big tech champions and other multinationals.

However, much of Facebook and Amazon’s business has both operating and net margins well below 10%. Amazon’s web services have a 30% margin, while the international e-commerce margin is 0.7%.

Every time there are new laws there will be winners and losers. Countries like Berne and Dublin lose the most because their corporate tax rates are below 15% and their “business model” relies on offering tax and other incentives to international companies when they choose to invest. ” set up their regional headquarters in Switzerland or Ireland. .

If the G7 is serious about rebuilding the world economy in a more equitable way, then the proposal of its finance ministers is a step in the right direction as it demonstrates the willingness of the world’s richest nations to cooperate and preach.

Is the proposal perfect? Far from it, but we must not let the perfect become the enemy of the good.

* Cornelia Meyer is a PhD economist with 30 years of experience in investment banking and industry. She is President and CEO of the business consultancy firm Meyer Resources. Twitter: @MeyerResources

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