The OECD and an end of the era of tax havens?

Nabila Ahmed looks at Biden's proposed new 15% global minimum tax rate and what it means for Ethical Consumer's Covid Tech Tax Campaign and Amazon Boycott.

It’s not every day that the United States pushes through a new agreement on global tax structures with the Organization for Economic Cooperation and Development (OECD). As of Saturday 5th July, the Group of 7 (G7) countries of Canada, France, Germany, Italy, Japan, the UK and US, have agreed in principle to a global minimum corporate tax rate of 15%

If this measure becomes adopted, it will mean that tax havens such as Bermuda, Luxembourg and the Cayman Islands can no longer operate so effectively as escape routes for corporate profits. The reform is helpfully designed in a way that it cannot be ignored or blocked by the tax havens themselves.  If they don’t put up their tax rates to at least 15% percent, other countries can ‘tax back’ the difference.

The current, outdated, global taxation system has had enormous consequences. Every year, multinational companies shift an estimated $1.38 trillion in profits to tax havens, with over $245bn in direct tax revenues lost globally. 

However, it appears that with a change in US president and the current coronavirus pandemic, the dynamic has shifted, and the US has finally seen the need for increased taxation. As well as proposing a 15% minimum global tax floor, President Biden is also planning to increase the US corporate tax rate from 21% to 28%.

How will this affect Amazon?

Despite increasing its European sales to a record €44bn in 2020, bizarrely Amazon is still recording a ‘loss’ of €1.2bn on its European activities. Adding insult to injury, Amazon EU Sarl, which is based in the tax haven of Luxembourg, was granted €56m in tax credits, along with €2.7bn of carried forward losses stored up, which can be used to offset any future profits

Unfortunately, this means that it is looking unlikely that Amazon’s ‘profits’ will be captured by Biden’s 15% global minimum tax rate in its current form. According to the Guardian, Alex Cobham, chief executive of Tax Justice Network, said:

“If the OECD cannot ensure Amazon is in scope, not only will it fail to meet the public demand for fairness, it will also offer a blueprint for other major multinationals to escape this element of the reform.”

However, Janet Yellen, the US Treasury secretary, told the Reuters news agency that she expected Facebook and Amazon to be covered by the proposal, and it is possible that other proposed elements may make some difference. Until the dust settles however, our Amazon boycott campaign over its systemic tax avoidance is not going anywhere.

15 percent

Minimum Effective Tax Rate

At Ethical Consumer we welcome the proposals for a 15% minimum tax rate, viewing this as a historic and major win for the cause of tax justice. As we have argued in our Tax Tech Now campaign, the Covid-19 pandemic has made the case for greater state intervention in the economy and the need to fill Treasury coffers to support that. As such, even in their imperfect state, these proposals should be championed.

However, we also support the position of the Tax Justice Network which argues that the 15% global minimum tax rate does not go far enough and that, in its current form, the benefits are not shared out fairly enough between rich and poor nations of the world. It proposes instead a Minimum Effective Tax Rate (METR) which, it claims, would raise $460bn globally, rather than the estimated $275bn in the OECD's approach.

India would gain $13bn under the METR proposal compared to $4bn under the OECD proposal. Similarly, Brazil would gain $10bn instead of $3bn, and South Africa would gain $3.5bn instead of $1.5bn.

Where now for our Covid tech tax campaign?

Since July 2020 Ethical Consumer has been campaigning for windfall taxes on tech multinationals to help pay for the costs of the pandemic. We have argued that the best way to do this is through raising the Digital Services Tax which is already being levied by the government to try to address the problem of serial tax avoidance by this sector.

It is clear that Biden's proposals for reform (which also include other measures for taxing digital income) will only come to pass if other countries promise to end their own Digital Services Taxes. While this is a reasonable price to pay, it is important that they only come to an end once the new agreement is signed and in place. Some think that this may be years away, although others think a deal may be done this year. It is not inconceivable either that the whole deal fails, as occurred with other OECD tax reform proposals in the 1990s.

Until the point of a new agreement being in place and operational, we will continue to call for a windfall digital services tax. It has now been agreed by 132 countries, and it looks like the implementation date will be 2023.

Covid shifting the tax focus 

It looks like the Covid-19 pandemic is beginning to shift the course of world history. For over 40 years, the neoliberal consensus of keeping the government at arm’s length, reducing taxation for the wealthiest in society and liberalising trade and taxation rules has held sway. 

This has created a situation where income inequality soared, both within and between countries. These times of deep crisis have given the impetus for serious change to occur. Tax is the crucial building block for any sort of redistributive economic system. 

These reforms could genuinely be the end of tax havens as we know them, the start of a fairer global tax system, and an end of the race to the bottom between nations offering ever lower corporate tax rates. We are nearly there, but it is not quite the time for our tax campaigning to pack up and go home yet.

What can consumers do?

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