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G7 tax deal won't challenge corporate power
Nick Hart, Black Country Socialist Party
Ahead of the G7 summit, the media brought news of a 'historic' plan to impose a global minimum tax rate on large companies. Hailed as 'revolution' by German finance minister Olaf Scholz, the deal was approved by the finance ministers of the G7 group of large capitalist powers ahead of their summit in Cornwall. United States Treasury Secretary Janet Yellen declared that it would "ensure fairness for the middle class and working people in the US".
Have the governments of these major capitalist powers had a conversion to ending the ever-growing gap between rich and poor? Is it a sign that they plan to turn away from neoliberal policies designed purely to benefit big business? Or is it simply an attempt to preserve the existing world capitalist order and the hierarchy of nations within it?
In a period when global trust in large corporations, and capitalism in general, has decreased in many western countries, and billionaires such as Amazon boss Jeff Bezos have become notorious for their massive wealth, the G7 governments need to be seen to do something to rein in the worst excesses of big businesses.
But the devil is in the detail. The outline proposal is for a minimum global rate of corporation tax of 15% on profits, down from the US government's opening bid of 21%.
This would apply to multinational companies with a turnover above a yet-to-be-decided threshold. It would allow governments in the countries where they are headquartered to receive a top-up tax on those businesses' overseas activities in countries such as Ireland and Hungary, where the headline rate of corporation tax is less than 15%.
At 15%, the proposed minimum tax rate is lower than the 16% paid on average by the five largest Silicon Valley companies in the last decade. It's below even the historically low current level in Britain of 19% (set to increase to 25% in the next two years), and may become a global maximum tax in practice.
The other 'pillar' of the proposals is a plan to allow for taxing of profits on goods and services at the point where they are sold to consumers, rather than where the companies involved are formally based. For instance, this would allow the British government to collect tax on profits from Apple Music subscriptions sold to UK users, rather than that of Ireland where Apple has its European headquarters.
However, the rules on taxation in the country of sale would only apply to firms with more than 10% annual profits. For instance, this could see Amazon paying these taxes on its cloud computing services, which last year made effective profits of 30%, but none on its home delivery business, where the margin is much lower.
Taken together, these measures represent an effort to place a floor under the race to the bottom by national governments cutting corporate tax rates, and the rampant tax avoidance by big business - 63% of American firms' profits in 2018 were declared in tax havens.
Firmly in the sights of the G7 countries is the hugely profitable digital technology sector which by nature is global. Users in Britain could be using an app developed in Germany, but reliant on servers based in Norway.
Big tech profits
The big tech companies have been able to make gigantic profits from subscriptions to apps from consumers and the rental of server space and computing power to businesses that, once developed, require next-to-no additional labour to sell to each new customer. Due to this and the dominance of a few big players in each field, the largest tech firms are set to provide a much more reliable source of profits for investors in years to come than manufacturing and more traditional service industries.
This deal has been nearly 13 years in the making, with global tax reform first discussed in the wake of the global financial crisis of 2008. Why is it that the plans are only progressing now?
The need of governments to increase their taxation income has become more urgent in the wake of the huge amounts of public money provided to combat Covid, both medically and with measures such as the furlough scheme in Britain. Following a decade of austerity, these pro-big business governments must make it at least appear to workers that the corporations are bearing the brunt of any tax increases.
Furthermore, Biden's plans to spend over $2 trillion on renewing America's creaking infrastructure, and Johnson's promises to 'level up' Britain through investment in neglected regions, will require funds raised from big business to help breathe new life into economies that were limping along before the pandemic.
The US government is mindful of its decreasing global economic and political power, and wants to secure a share of the proceeds of global commerce and financial transactions while it still can.
For all the celebratory outbursts following the agreement being reached, it still needs to be approved next month at a meeting of the larger G20 group of countries, including China and Russia, whose economic and political interests are at odds with the US and some other G7 countries. Any new rules that are eventually agreed would have a run up of years, not months, before being fully implemented, as the specifics of when they will apply and how they will be enforced are thrashed out.
Even if these proposals succeed in reshaping the global tax system so that multinational companies pay significantly more than they do at present, it will not remove the power of these big businesses and the politicians they sponsor over our lives, or lead to a fairer, more humane form of capitalism.
Ultimately, the modern corporate giants would not be able to generate the multi-billion pound revenues they do without the efforts of workers, from app developers to copper miners. In the long term, the only just solution will be to take over these monopoly powers and to have those same workers run them democratically as part of a global socialist plan of production. This could then see not just the monetary wealth but the physical and intellectual resources of these companies used for the benefit of people and the planet, not simply the balance sheet of the US Treasury.
In The Socialist 9 June 2021:
What we think
Lessons from history