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By Eva Joly
"A code red for humanity". UN Secretary-General António Guterres could not have summed up better the chill that grips everyone when reading the report published by the Intergovernmental Panel on Climate Change (IPCC) in early August. Natural disasters, water shortages, forced migrations, malnutrition, pandemics, species extinction: it is scientifically established that life on earth as we know it will be inescapably transformed by climate disruption when children born in 2021 turn 30.
This is already happening, as illustrated this summer by the rainfall that has plunged China and Germany into mourning, the burning forests from North America to Siberia, and the increasingly devastating hurricanes in the Caribbean. This will now be our lot, with unprecedented human consequences. Specifically in Asia, marine heatwaves will continue to increase, fire weather seasons will lengthen and intensify, heavy rains will amplify, shorelines will retreat, and coastal areas will shrink.
Yet, there is still a window of opportunity to avoid the worst, by limiting global warming to 1.5°C compared to the pre-industrial era. But this window is closing. We must urgently and radically decarbonize our economies, put an end to deforestation, and replant wherever possible. And on top of that, we must also reduce our energy consumption and massively develop renewable energies.
However, implementing what should no longer be called a "transition", but an energy "switchover", has a cost. Not only to finance the plans just announced by the United States and the European Union to halve their carbon emissions by 2030, but also to help developing countries, whose economies are devastated by Covid-19, to do the same.
The money exists, so we must go and find it where it is: in the accounts of multi-millionaires hidden in tax havens, and especially those of multinationals which, for decades, have not paid their fair share of taxes. This is why the Biden administration has announced that it will tax the profits of the foreign subsidiaries of US multinationals at a rate of 21% and has called on the world to do the same, by adopting a global corporate minimum tax rate. In concrete terms, if a US multinational declares its profits in a low-tax country, such as Ireland, where it would only pay a rate of 12.5%, it would have to pay the difference of 8.5% to the American tax authorities.
With this initiative, Washington wants to put an end to tax havens and the race to the bottom in corporate taxes. This is an urgent matter, as global nominal tax rates on firms’ profits have fallen from an average of 40% in the 1980s to 23% in 2018. This means fewer tax resources to finance public services such as education, health, gender equality or the fight against climate change. At this rhythm, corporate taxation could fall to zero by 2052.
Boosted by the US announcement, the negotiations for the reform of the century-old international tax system have just reached a first step, under the aegis of the Organisation for Economic Cooperation and Development (OECD), described by its signatories as "historic". However, this is far from being the case. It is true that the 133 countries involved agree to tax multinationals based on objective factors such as sales - but employees and access to resources should also be considered. In reality, these new rules would apply to fewer than 100 companies worldwide, since they only apply to those with sales of more than 20 billion euros and profits of more than 10%, and moreover exempt the financial sector. These tax resources will therefore go primarily to rich countries.
Worse, countries must commit to abandoning taxes on digital companies, depriving themselves of precious resources. This explains why two major African economies, Kenya and Nigeria, have refused to endorse the agreement. And developing countries will have to submit to international arbitration in the event of a dispute between their tax authorities and multinational companies, which they fear will be at their own expense.
That's not all. The OECD agreement provides for the adoption of a global tax at a minimum rate of 15%. This is a far cry from the US ambition of 21%, and even further from the 25% that the Independent Commission on the Reform of International Corporate Taxation (ICRICT), of which I am a member along with economists Joseph Stiglitz, Thomas Piketty and Gabriel Zucman, among others, advocates. Despite the highly unequal distribution proposed by the OECD, a global minimum rate of 25% would bring in nearly US $17 billion more per year for the 38 poorest countries than a rate of 15%, enough to vaccinate 80% of their population against Covid-19.
Again, all is not lost. Negotiations continue until October and a group of rich countries (the United States and Germany in particular) and developing countries (e.g., Argentina, South Africa and Indonesia) are determined to fight for a fairer reform. Taxing multinationals better is also a chance to avoid global warming with devastating consequences for humanity. The future is in our hands, but time is short.
Eva Joly is a member of the Independent Commission for International Corporate Tax Reform (ICRICT) and a former Member of the European Parliament, where she was vice-chair of the Commission of Inquiry into Money Laundering, Tax Evasion and Fraud.
Also published:
Social Europe (UK): https://socialeurope.eu/to-stop-global-heating-tax-multinationals-better
