Hailed as a great leap forward by some and denounced as a betrayal by others, the G7’s nascent global deal on corporation tax has received mixed reviews, and rightly so.
The deal as drafted is underwhelming, but also a breakthrough; insufficient but also ground-breaking. The contradictions were perhaps best summed up by the US academic economist Gabriel Zucman, who described the deal as “historic, inadequate and promising”.
This is far from the final deal, and what we are assessing now is an interim agreement. But this is a staging post on a certain path, and we must assess where it might be leading – and what actions we can take to change that direction if necessary.
While many have praised the leadership of the Biden administration’s “revival of multilateralism” (as treasury secretary Janet Yellen called it) and modest social democratic turn, this journey began a long time ago.
In the UK, campaigners like John Christensen and Richard Murphy have toiled for over 15 years to expose the role played by the City of London and offshore tax havens like Jersey. 16 years ago, former shadow chancellor John McDonnell and I pulled together a small group of economists and campaigners on economic issues. The Left Economics Advisory Panel helped support platform campaigns that weren’t being heard amid the hubris of New Labour’s pre-crash embrace of neoliberal globalisation.
New Labour had apparently abolished boom and bust, while enabling further cuts in corporation tax from the 33% deemed acceptable by the Tories after 18 years in government down to 28% (the lowest in the G7). New Labour not only failed to regulate the finance sector based in the City of London, but did nothing to rein in the network of UK overseas territories (e.g. Cayman Islands and Bermuda) and crown dependencies (e.g. Jersey and Guernsey) on which Britain’s bloated finance sector depended. In the aftermath of the crash, we learned that the larger banks like Barclays had over 100 subsidiaries in the Cayman Islands alone.
The campaigns for greater scrutiny exposed these networks – but regulating them has always butted up against the realpolitik of geopolitics. The EU has defended jurisdictions such as Luxembourg and Monaco, while demanding greater transparency of non-EU territories. Under David Cameron and Theresa May, the UK blocked tighter regulation of our overseas territories and crown dependencies.
Campaigning groups like UK Uncut popularised the academic and investigative work of groups like the Tax Justice Network, exposing how companies like Starbucks and Virgin used offshore companies to shift income and dodge taxes, and were as financialised as the banks. This led to the demand for country-by-country reporting: that companies report their profits in the country where they make them or, importantly for profits made through online trading, from the customer base from which they make them.
The fact that country-by-country reporting is now part of the debate at the G7 is a tribute to the praxis of that academic, campaigning and investigative journalistic work (like the Panama Papers). It is also a reflection of the realpolitik that western nations fear their tax base being eroded by globalisation – and those fears are more acute after a global pandemic has ravaged public finances.
The detail of what has tentatively been agreed at the G7 on this issue is known as ‘pillar one’, and is complicated by US concerns that digital sales taxes being proposed by the EU, UK and Canada will undermine the US Treasury’s claim on US-based companies tax revenues.
Campaigners have identified loopholes in that the pillar one deal would only apply to global companies with at least a 10% profit margin, and even then only 20% of any profit above that would be reallocated and taxed in the countries where they operate. The 10% profit margin clause excludes mega-corporations like Amazon, with low margins but huge profits. The 20% threshold is also deemed too low and helps to keep too much of the revenues in the rich G7 nations (this low threshold is particularly a victory for US self-interest).
The other flaw is the low global minimum corporation tax rate of 15% (pillar two of the agreement). However, optimists would argue the G7 agreed “at least 15%” and there are ambitions to get that higher – including from French finance minister Bruno Le Maire, who pledged that “we will fight to ensure that this minimum corporate tax rate is as high as possible”. Biden himself favoured 21% initially.
The UK’s own independent report commissioned by the prime minister called on the G7 to “strengthen international tax cooperation to help bolster public finances […] including through the consideration of a minimum tax rate on corporate profits of 21%”. Whether the PM backs this line remains to be seen. Oxfam and the Tax Justice Network continue to press for 25%.
The G7 Finance Ministers’ agreement is a small and important step forward – it establishes the principle of nations uniting together under popular pressure to oppose tax dodging. But the detail shows how weak this will be without further pressure. Having forced them onto our agenda, we need to keep campaigning to make the policy detail match the rhetoric.
We have got this far because we educated, agitated and organised – and now we need to do so again. The next staging point will be the G20 Summit in July.
Andrew Fisher was the Labour party’s executive director of policy from 2016 to 2019.