For a Fairer Global Taxation

The recent crisis demands improving the tax collection framework for multinational corporations.

We live in exceptional times that demand special answers. In the case of democracies, this does not mean that it is necessary to revolutionize the entire system; instead, we should be looking for balance and deep readjustments within the system itself. Among these, the need for stronger state action stands out (as the state is the provider of more essential public services than ever and guarantees a respectable level of social cohesion), which means it inevitably should be sustained by greater resources. In this context, the powerful political impulse that Joe Biden’s administration is favoring opens new scenarios, especially in the search for a great financial global pact that ensures contribution by the largest companies of their fair share to the public coffers.

The encouraging proposal from the U.S. has two main points. First, the objective that U.S. Treasury Secretary Janet Yellen presented this week stands out: establishing a global minimum rate for the taxation of corporations. This would represent an important turn in the predominant financial discourse over the last few decades of lowering tax competition between countries. The average tax rate of societies in the most advanced economies has fallen from 32% in 2000 to 23% in 2018. Second, Washington is open to support for the largest corporations paying a fair share of taxes wherever they generate profits. This is a very contentious issue, which has brought countries like Spain and France to attempt a digital service tax, also known as the “Google tax,” to tax more technology services that can transfer their intangible assets to countries like Ireland with more favorable tax rates.

The U.S. initiative has received rapid support among the main European leaders, an appropriate reaction. The European Commission has also celebrated and called on the U.S. to close a deal this very summer within the Organization for Economic Cooperation and Development, where the most developed countries have been negotiating a global tax framework that adapts to the new digital economic environment and prevents the largest corporations from transferring their taxable operations to jurisdictions with more lax tax codes in order to lessen their tax burden for almost a decade. These practices detract the precious resources from many public sectors in an immoral fashion. Washington was — until now — one of the OECD members delaying the agreement the most. This has changed.

The idea that more resources are needed to fortify the state whose well-being has been eroded by the recent crises is reinforced, now that the International Monetary Fund — which in previous times tended to be the guardian of liberal orthodoxy — proposed a temporary solidarity tax this week, so that the wealthy and the companies who have benefited most throughout the course of the pandemic contribute to paying for the crisis. The tax, the IMF contends, would contribute to balancing social inequalities exacerbated by the health crisis.

We cannot afford naïveté. Despite the fundamental change within the U.S., difficult challenges remain ahead, through possible resistance from some countries and the maneuvering of their own companies. But the objective is fair, and there is great opportunity to reach it. With Biden in the White House and Mario Draghi presiding over the Group of 20, there is leadership predisposed and prepared to push the negotiations.

Capitalism has been and is a powerful factor in development for society; successful investment deserves compensation. But capitalism should assume that a decent attitude and avoiding excess is the insurance of its future, and the countries that maintain harmful monetary policies toward public interest should understand that excessive obstinacy will not be forgotten. Strong public services in essential areas and the social cohesion that they generate are a symbol of progress. They should be adequately financed.