Given that the Group of Seven represents the world’s most significant developed economies, you’d think that they would be up to speed on globalisation. But at least they’ve somewhat caught up to the level of international interaction in the fraught area of corporate taxes.
“Finance Ministers agreed the principles of an ambitious two-pillar global solution to tackle the tax challenges arising from an increasingly globalised and digital global economy,” according to the statement from the meeting of finance chief of Canada, France, Germany, Italy, Japan, the UK and US in London on June 5.
Pillar One requires the largest and most profitable multinationals to pay tax in the countries where they operate, not just where they are headquartered. Pillar Two requires at least a 15% global minimum corporate tax.
These moves support those already under way through the G-20/OECD Inclusive Framework “to address the tax challenges arising from globalisation and the digitalisation of the economy and to adopt a global minimum tax”.
The messaging has made it clear that Amazon, Facebook and the other leading international technology companies will be included within this framework, ending current practices where they attributed their earnings to intellectual property and other assets siloed in low-tax economies.
We’ve been hearing warnings about the dangers of social disintegration over growing inequality for decades now. Could the ruling global consensus finally have accepted that corporate profits have been sequestered within corporations for far too long now, instead of being redistributed to their workers in the form of salaries, and their underpinning societies in the form of taxes? One thing that the coronavirus pandemic surely proved is that societies are worth paying for. Companies should have accepted that a long time ago.
The G-7 statement devoted as much, or more, space to efforts “to tackle climate change and biodiversity loss”. These include commitments to address “the need to green the global financial system” and many other areas. Given the emphasis put on them, I’d concur that they are at least as important as the fiscal commitments. I’d also put them under the same overriding rationale.
Essentially, there are no more external factors in business. Of course, there are things that a company cannot change. But a company cannot argue that it has no responsibility for the things it affects – fiscally, socially, or environmentally. Seeing how globalisation has provided the new laissez-faire cover for businesses to dodge accountability for their responsibilities and their misdeeds, it’s more than about time.