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t has now been over two years since G7 leaders announced a groundbreaking agreement to divvy up taxation of multinational corporations’ profits. That breakthrough followed years of fraught negotiations under the aegis of the OECD/G20 Inclusive Framework, which then adopted the same agreement later that year. Joseph E. Stiglitz shows that self-identified fiscal hawks are missing the point about “living beyond our means.”
By establishing a 15% global minimum tax rate that companies would have to pay wherever they operate, the agreement aimed both to deter profit-shifting through tax havens and to limit beggar-thy-neighbor policies for attracting foreign investment. It also introduced an additional tax on “around 100 of the world’s largest and most profitable multinationals to countries worldwide, ensuring that these [firms] pay a fair share of tax wherever they operate and generate profits.” The goal was to force technology giants like Amazon and Google to pay more taxes to countries based on where their goods or services are sold, regardless of whether they maintain a physical presence there. But the consensus behind the agreement appears to be eroding. While the European Union and other OECD members have started to implement the agreed global minimum tax, the US Congress rejected this approach last year for fear of putting American companies at a competitive disadvantage. Under the Inflation Reduction Act, the United States instead opted for a 15% alternative minimum tax on companies that book more than $1 billion in income for three consecutive years – a criterion that applies only to a small cohort of US multinationals. Moreover, the other plank of the deal – the mechanism reallocating a small share of profits from the largest multinationals to signatory countries – calls for a binding multilateral treaty. But that will be a non-starter in the US, where the ratification of any treaty requires a two-thirds majority in the Senate. Republicans have already made clear that they will oppose any new tax on US multinationals. Yet even without a formal multilateral agreement, more countries may unilaterally adopt other measures that are not allowed under the 2021 framework, such as the digital-services tax. Colombia and Tanzania recently introduced such measures. Countries across the Global South are desperate for new sources of tax revenue, and many have concluded that their concerns were not adequately addressed in the negotiated settlement two years ago, when most of the focus seemed to be on the interests of advanced economies and their multinationals. Now, the lack of progress toward full adoption has further eroded their confidence in the process.
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