G7 Finance Ministers didn’t hold back on fanfare after reaching last week’s agreement on global tax reform. US Treasury Secretary lauded the deal as “historic”, while her German counterpart Olaf Scholz called it "very good news for tax justice.” UK Chancellor Rishi Sunak declared the creation of an international tax system "fit for the global digital age."
We should allow these leaders a degree of triumphalism. International tax reform is fraught with difficulties and this agreement – years in the making – is a clear step in the right direction. It’s not perfect, but we should not allow the best to be the enemy of the good and the ministerial communiqué does leave open the door to greater levels of ambition. Market countries will be allocated taxing rights on “at least” 20% of profit exceeding a 10% margin, while the global minimum tax will be “at least” 15%. These are signals that the deal struck can be a baseline, not the extent of ambition.
The coming months bring opportunities to raise the bar further, which is why business leaders must find our voice. Quite rightly, global tax policy is not made by the G7 and a meeting of G20 finance ministers in July will be key, as well as technical talks amongst +130 countries at the OECD. Don’t underestimate the difference it can make if these politicians and their officials come to the table knowing a growing number of business leaders want them to be bold.
Of course, short-termist, shareholder-obsessed firms will continue to lobby for opaque, loophole-riddled international tax rules, which they can game to suppress their bills. Think of them as invisible devils on finance ministers’ shoulders, threatening that international compromises will hurt national corporate tax bases. By contrast, courageous CEOs can provide a more enlightened counsel, promising to back an international agreement that is fair and levels the playing field for all.
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