Categories
Analysis

Discussing the Global Minimum Tax Rate

Introduction

Last month, the leaders of the Group of Seven (G7) met in Cornwall and revealed a new agreement to introduce a global minimum corporate tax rate of at least 15%. This tax would have to be paid by all corporations, regardless of where they locate their headquarters and was created in an effort to stop large multinationals from shifting their profits into tax-havens to avoid paying corporate taxes. 

Why is it necessary?

Finance leaders around the world have stated that, as of late, corporations in global commerce are trying to get the tax rate as low as possible: “We’ve had a global race to the bottom in corporate taxation and we hope to put an end to that,” Treasury Secretary Janet Yellen said in late March. Major developed economies around the world, such as Britain and the US, have wanted to raise corporate taxes and find methods to tax large tech giants at higher rates, but this is extremely difficult to do when these corporations are international but taxes are national. Essentially, no economy would be able to pass legislation to raise taxes when every other economy in the world remained at their relatively lower tax rates — not only is this controversial but it is also futile as large corporations are skilled enough to know how to move their profits into locations where the corporate tax is little to none. The global minimum rate will, ideally, ensure that all corporations around the world are taxed at the same base rate and thus create an even playing field. 

Problems that may arise

This initiative does not come without its critics. Republicans have argued that this decision will inevitably reduce the competitiveness of American corporations, which was counteracted by the fact that all countries will have the same base rate. Regardless, they are still reluctant to changes in the tax code and are in favour of minimised government intervention in the economy. The Biden administration has been pushing for a hike in the corporate tax rate, as this supports the President’s plan to raise the US rate from 21% to 28% to fund his large-scale infrastructure plan. Additionally, although Biden is clearly pushing for the change, it will be an obstacle for him and his administration to get this plan through to the thinly divided Congress in which Republicans will resist changes to the tax system. 

Some of the G7 delegations are in fact insistent on this tax rate being flexible, in order to ensure it can be pushed even higher in the future. Although several nations are highly supportive of this agreement, it only includes 7 nations. The G7 — Britain, Canada, France, Germany, Italy, Japan and the United States — plans to extend this proposal to the G20 as well later this year. 

This tax also incorporates stricter taxation for huge multinationals, notably US tech corporations, who have avoided taxes in spite of the considerable profits they gain from operating in several locations. 

Conclusion

All in all, this tax definitely levels out the playing field for global corporations, and could even help improve the budgets of some countries that will benefit from greater tax revenue. Although it disadvantages smaller economies that have thrived due to low taxes, such as Ireland, further planning and proposals to a greater variety of nations indicate a promising future for equitable taxation. 

Sources:

Categories
Weekly Summaries

14th of June – 21st of June

Elections in Israel

The former Prime Minister, Benjamin Netanyahu was “formally ousted” by Israel’s parliament last Sunday. The new coalition government was then approved by a single vote (60 to 59) and one abstention. Israel’s new Prime Minister Naftali Bennett, who is said to be further right than Netanyahu, will be replaced by the centrist leader Yair Lapid in two years. In total, the new coalition government is made up of eight parties — including an independent Arab party for the first time in Israeli history — who have little in common due to their wide distribution among the political spectrum. This could mean trouble for the new government in the future, although they have announced that as the new coalition government, they will focus more on domestic issues instead of issues that divide them to provide some stability. The first step that the new Israeli coalition took on Tuesday was to announce their plans to “repair Israeli ties with the US,” the New York Times reported. However, at the same time, the Israeli military bombed parts of the Gaza Strip in the early morning hours last Wednesday after incendiary balloons were sent by the Hamas into southern Israel. So far, there have been no reports of casualties.

The G7 Summit in Cornwall

The first-in-person summit since the pandemic first began concluded last week. The countries that attended were the US, Canada, France, Germany, Japan, Italy, and the UK. Although the G7 countries were not able to reach agreements on all topics they wanted to address, they have planned a range of new policy approaches. You can read more about the G7 summit on Cornwall here: https://econir-web.com/2021/06/20/the-g7-summit-in-cornwall/

Other News

  • Ebrahim Raisi has won the election in Iran, becoming the new President. However, voter turnout, especially among the younger generation, was very low.
  • During the NATO summit, President Biden “reaffirmed his commitment to the alliance,” according to the New York Times. The union has also taken a harder stance towards China and Russia, saying that China’s growing military power and influence around the world may “present challenges.”
  • President Biden met with President Putin in Geneva. The meeting was described as “positive” by President Biden and as “constructive” by President Putin, with outcomes such as an agreement to “open U.S.-Russia talks on cybersecurity and arms control” (the New York Times) being made.
  • Britain and Australia have made a free-trade agreement, which is Britain’s first major trading deal since it left the European Union last year.
Categories
News

The G7 Summit in Cornwall

What is the G7?

The G7 is a political establishment, founded in 1975, that addresses current and potential future challenges that can affect the growth of the global economy, including the impacts of fluctuating oil prices and of emerging markets. The G7 is made up of some of the wealthiest economies across the world — the US, the UK, Canada, France, Germany, Italy, and Japan (China is not a member of the G7). The organisation is not an official, formal entity and therefore has no legislative or authoritative power to enforce policies or laws around the world. However, due to the powerful nature of the countries involved, policies can be introduced within said countries, helping to resolve global issues.

What is the purpose of the G7? 

The intergovernmental organisation meets periodically to assess economic and monetary issues that have developed throughout the world between each summit. They discuss and sometimes act in order to assist in resolving global issues, particularly those that concern the global economy.  Their efforts have allowed the organisation to launch initiatives, which fund issues and relieve crises, including several aimed at relieving debt within developing nations. For example, the establishment provided $300 million in 1997 to help construct the containment of the reactor meltdown at Chernobyl, following the nuclear disaster. 

What did they discuss in Cornwall last week? 

As expected, the main topic of conversation was resolving the current global crisis, COVID-19. The leaders within the establishment debated the importance of a stronger global health system and reviewed a potential plan of action which could reduce the global health inequality that could protect us from future pandemics.  Their agenda further included discussion on actions taken towards climate change, e.g. the unsuccessful Paris Agreement of 2015, and trade agreements. This was a big topic for Britain in particular, since talks regarding Brexit began in 2016 when Britain decided to leave the European Union.

What were the outcomes of the meeting? 

The meeting had three major outcomes: “A Billion doses of COVID-19 vaccine (1)”, “no more coal (2) ”, and “tech giants and tax havens targeted (3)”.

  1.  The leaders at the conference pledged to deliver over 870 million vaccine doses to the developing world, on top of the 250 million already promised by the US and the 100 million from the UK. This action will not only allow the HIC’s to recover from the pandemic but allow LIC’s to recover, also. This will have a rather large impact as the lower-income countries are more at risk of an unrecoverable economic depression than higher-income countries. 
  2. There was a unanimous agreement in which the G7 leaders pledged to phase out coal-fired power generation at home and reduce/end funding for new coal-burning power plants in the developing world. Furthermore, the leaders committed to offering developing nations $2.8bn to help them switch to cleaner fuels. These plans will not only help reduce carbon emissions but will consequently reduce climate change. A large issue within climate change is that developing countries do not have funding to provide renewable sources of energy. Therefore, this initiative is of great importance as it will allow countries to take a global stance against global warming.
  3. The summit agreed to take steps towards dissuading MNC’s (multinational co-operations) from shifting profits to low tax-havens. The leaders signed up to levy a minimum 15% corporate tax rate. This will help boost economies especially following the pandemic, which has caused severe economic instability globally. Furthermore, the leaders have also moved to help protect the global financial system from the impact of climate change by agreeing on rules which require companies and financial institutions to disclose the extent to which their business is exposed to climate change risks.

Sources

  1. https://www.weforum.org/agenda/2021/06/g7-summit-covid19-tax-environment/
  2. https://www.investopedia.com/terms/g/g7.asp

Categories
Weekly Summaries

7th of June – 13th of June

Canada and its history

Last month it was announced that on the grounds of the old Kamloops Indian Residential School, the bodies of 215 Indigenous children had been found. This discovery has led to a wider discussion in Canada about its past. Although Prime Minister Justin Trudeau has been working on enacting a list of 94 actions to commemorate the victims and improve the lives of Indigenous people in Canada today, Indigenous leaders insist that the government is still doing too little.

Other News

  • This Sunday a vote of confidence by the lawmakers in Israel was held, which will determine the fate of the new coalition government
  • A famine has afflicted at least 350,000 people in the Tigray region in northern Ethiopia. The region is already conflict-ravaged and now at least 5.5. million people in total are facing food insecurity.
  • The finance ministers of the G7 countries agreed to “back a new global minimum tax rate,” which is supposed to prevent large multinational companies from taking advantage of tax havens, according to the New York Times
  • Twitter has been banned in Nigeria
  • Tensions in Northern Ireland have increased. Northern Ireland has been left in an awkward position, caught in between the trading system of the European Union and the UK thanks to Brexit
  • It has been announced that Jeff Bezos, the CEO of Amazon, will be on the first spaceflight of Blue Origin (his rocket company) that will carry humans. He will bring along his brother and one lucky fan
  • A train collision in Pakistan, which killed at least 33 people, has raised wider concerns over the safety of rail travel in Pakistan