This week, G7 finance ministers will meet in London to discuss, among other things, the Biden Administration’s proposed global minimum 15% corporate tax rate. The idea is simple (to crack down on multinationals’ tax arbitrage schemes) and comes gift-wrapped with a timely justification (to pay for pandemic-induced recovery packages). The proposal, with U.S. Treasury Secretary Janet Yellen playing ringmaster, has gained serious (and increasingly rare) international support. Corporations have made no secret as to how they feel about it, but there’s been so much political momentum that they, along with traditional tax havens like the Cayman Islands, might’ve simply had to stomach it – save for one notable holdout: the United Kingdom. Keir Starmer, leader of the Labour Party and of the opposition against Prime Minister Boris Johnson’s Conservative Party government, tweeted last week:
Tonight the Conservatives voted against Labour’s proposals to support @JoeBiden‘s global minimum corporate tax on big multinationals. We’re the only G7 country not supporting it. Boris Johnson is risking billions of pounds in tax revenue that should be spent on our recovery.
But the issue is actually far more complicated than U.K. citizens simply missing out on tax revenue; the scheme will only work effectively for all G7 members if Johnson’s government gets on board. As Nobel laureate and Columbia University professor Joseph Stiglitz pointed out in the FT:
The leaders of the G7 can either be a force for change or they can reinforce the status quo. The US has made the right move. Now it is Europe’s turn to take its responsibilities seriously and ensure the winners from globalization contribute to the wellbeing of future generations.
Indeed, Johnson and the Conservatives – slowly loosening both the political and economic bonds that once connected them to the EU – may be holding out in hopes of undercutting those members of the G7 that do commit to the tax floor with more attractive rates of their own. Could the next great tax haven, of all places, be … London?
So for now, expert consensus but a fly in the ointment. The state of play over multinational corporate governance likely leads to one of two conclusions: that unanimous multilateralism is more imperative now than ever, or that the very need for such purity undermines its usefulness entirely.
