Standardising taxes in an international world

Posted at 5.40pm UK time

Since the neoliberal revolution of the 1980s, which gave birth to a highly globalised and technological world economy, global corporations – whose wealth and profits dwarf those of Medieval Kings and Queens – have been able to filter their money through numerous taxation and legal systems so as to avoid paying higher taxes, whether that be through avoidance or relocation.

This allows large corporations to hold nations to ransom, for if the taxes become too high or the regulations too strict, corporations can move their operations elsewhere, resulting in job losses and a decrease in corporation tax revenue. In the broader sense, this fuels a race to bottom, where governments must weaken the power of their taxman to attract these firms.

Therefore, the G7 agreement to standardise corporation tax of at least 15 per cent to prevent the practice of offshoring (where money made elsewhere is moved to a low-income nation for it to be taxed there) is a step in the right direction. Although this principle is not yet universal, and burgeoning economies such as China and India have not yet been persuaded to sign the dotted line, the upcoming meeting of the G20 nations should reveal what’s looming on the horizon.

The pandemic has seen the largest transfer of wealth from the poorest to the richest in history, as lockdowns have left millions jobless while large corporations, having the digital infrastructure already in place and their brick-and-mortar competition wiped out, have ballooned in profits.

In turn, governments across the world have borrowed and spent record breaking sums of money into fighting Covid so are desperately trying to balance the books, and see this as a viable option.