Earlier this month, the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) announced a “historic agreement” on international fiscal policies. It sets a minimum tax rate of 15% for multinational entities. It intends to stop “the global race to the bottom” in corporate tax. Or at least, to slow it down.
Before anyone gets into the hysteria of “raising taxes,” corporate tax rates in G7 countries currently range from 19 percent in the UK to 32 percent in France. It’s 21 percent in the US.
More significantly, it refers to “legal” tax rates: the rate that companies could pay in a world without creative accountants, lawyers, and expensive lobbies.
What do companies really pay in taxes? Good question. No good answers. No one knows and everyone is lying.
Corporation taxes are no more public than private. However, corporate statements include taxes paid and due. In late 2019, the Institute for Fiscal Policy and Economic Policy (ITEP) published a study entitled Corporate Tax Avoidance in the First Year of the Trump Tax Act, which provides an overview of effective tax rates of profitable companies in 2018. For the study, ITEP researchers examined the financial data of Fortune 500 companies and identified 379 companies that were profitable and provided enough information to calculate effective tax rates on federal income. They found that these companies paid “an average effective federal income tax rate of 11.3%,” just over half of that “legal tax rate” of 21%. They also found that 91 of those companies, including Amazon, Chevron, Halliburton and IBM, did not pay any federal income taxes. While an additional 56 companies “paid effective tax rates between 0 and 5%.”
These findings are not exclusive to 2018. In 2020, according to Forbes, 55 of the Fortune 500s, including Nike, FedEx, Netflix, Molson Coors, Levi Strauss and Starbucks (with a profit of $ 4,774,000,000), did not pay any taxes. on federal income.
It is very significant that the tax credits identified in the ITEP report “are highly concentrated among a few very large companies.” They also favor the richest people in the world. They are part of the manipulated system that allowed Jeff Bezos to pay zero federal income taxes in 2007 and 2011, George Soros did not pay any for three consecutive years from 2016 to 2018 and Michael Bloomberg had a real tax rate of the ‘1.30% and in 2018.
So will the G7 proposal, if it becomes an international agreement, set “effective” tax rates?
It leans in that direction.
One of the great tricks of tax avoidance, especially for really large companies, is to pretend that the business they do in a country with reasonable tax rates occurs in a nation with below-average tax rates. Imagine a product that is sold largely in countries like the United States, Germany, and Japan, but the profits from that product have shifted to Ireland or Hungary (through accounting tricks).
If the G7 can bring the rest of the world to its minimum 15 per cent tax system, it will start to close the gap between countries where goods and products are actually sold and those that are advertised as “hidden holes”.
In addition, according to the new G7 agreement, “nations where corporate products are consumed would have the right to tax 20% of profits above a 10% margin.” This could make it harder for large companies to avoid paying reasonable amounts of taxes by “moving” their business to countries with hidden holes.
But large companies still have ways to prevent it from being affected by this provision.
For example, Amazon’s profit margin was said to be 6.3 percent by 2020. That’s pretty normal for “retail”. (Note that it refers to net profit margin. A proportion of revenue. Its gross profit margin, sales revenue minus production cost, is approximately 40%.) In 2020, revenue of Amazon were $ 386 billion, with a net income of $ 21.33. bn. But with this 6.3% “profit margin”, they would escape the G7 provision.
The solution proposed by this G7 to this problem is to look at companies ’high net profit margin sectors, such as Amazon’s cloud computing services, by about 30%, separately from retail operations. low margin. Complicated things indeed, but shows awareness of the problems.
The G7’s “historic agreement” on international fiscal policies is much more of an idea than an agreement. The seven countries in the group cannot address this issue on their own. The agreement needs much wider participation. The intention now is to take it to the G20. This group includes some of the most significant economies in the world, such as China, India, Russia, and Brazil. But in addition to arriving, G7 leaders must also approve this plan at home. Can the Biden administration, for example, reach this agreement through a Republican Senate that has promised to block anything and everything it does?
It may seem that the short list of super billionaires who did not pay taxes was a striking detail. It’s more than that. It is a statement about the contrast between making nice statements and actual behavior. Bezos, Soros and Bloomberg have made statements in favor of raising taxes on the rich and corporations. However, when it comes to acting, they find aggressive ways to minimize what they pay or, preferably, to avoid paying anything. The formula is clear: use the best accountants to navigate the laws and find the loopholes, spend generously on lawyers to fight to get that right, use the lobbyists to write the laws in your favor, and get non-enforcement when you don’t they are.
The intentions of the G7 proposal are excellent.
But companies, countries with hidden holes and the super rich will fight against these good intentions and for their profits every step of the way.
Therefore, what matters is not the intent of the G7 agreement, but its implementation. And that is still at least a few years into the future.
The views expressed in this article are those of the author and do not necessarily reflect the editorial stance of Al Jazeera.