Every state has to face the injustices resulting from the profound technological change, the growing market power of large companies and the strong competitive pressure resulting from the mobility of capital. At the same time, the worst global health crisis in a hundred years has put a heavy strain on the public finances of the world's economies. While some countries are gradually recovering from the effects of the Covid-19 crisis, others are still in the thick of it. As Finance Ministers, we are grappling with two pressing problems, all of which could threaten our economies, however different they may be.
First, the big corporations and the wealthy are much better off than those at the bottom of the economic ladder. The economic impact of this crisis has disproportionately hit low-income citizens and parents who have had to choose between their health and the safety of their children, and their livelihoods. Small businesses and their owners particularly suffer as they have had to close to protect the community. Meanwhile, many group sales have soared, higher earners and shareholders have come through the crisis relatively unscathed.
The second problem follows from the first. Governments desperately need revenue to get their economies back on track and support troubled small businesses, workers and families. And this need will continue to grow even after the pandemic has subsided in view of climate change and longer-term structural problems.
This income has to come from somewhere. For far too long and far too much, the income of employees has been used, which is easy to report and calculate. Investment income is more difficult to tax because capital is mobile and the income is better suited to accounting tricks. With these “tricks”, corporate capital gains are too often shifted to low-tax areas. Corporations with the highest profits are cleverly reducing their tax burden, leaving more for their shareholders but less for urgent fiscal tasks.
Governments are always concerned about taxing their corporations too high, causing them to relocate their business activities and jobs abroad.
The consequence of this is a dynamic that has developed over the past half century and, in the classic economic sense, represents undercutting competition in corporate tax rates.
Chance to end the undercutting competition
The good thing is that we can solve both problems together: with a global minimum taxation for companies that puts an end to these tricks. Our governments are sovereign and have the right to determine their own tax policies. However, by exercising these sovereign rights together, we can lead our economies on a sustainable and inclusive path to recovery better than we could on our own. Our efforts are a beginning to overcome the injustices of the global economy that have denied access to global prosperity for too many people.
This year, states have the historic opportunity to end the undercutting competition in corporate taxation and thus to replenish the public coffers at a time when this is urgently needed. Under the umbrella of the OECD / G 20, 139 countries are striving for a fairer distribution of income from corporate taxation between the countries and the introduction of a globally agreed minimum taxation. This minimum taxation limits tax competition and ensures that companies are taxed appropriately.