The rapid, radical decarbonisation needed to save the planet will cost a lot. Taxing multinationals and the wealthy properly can help pay for it.
‘A code red for humanity’: the United Nations secretary-general, António Guterres, could not have better summed up the chilling impact of 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, even in rich countries. In Europe already 3,000 die on average each year due to climate extremes. If no action is taken this is expected to rise to around 100,000 by 2050 and 150,000 by the end of the century.
There is still a window of opportunity to avoid the worst by limiting global heating to 1.5C from the pre-industrial era, to which the Paris Agreement aspired. But this window is closing. We must urgently and radically decarbonise our economies, put an end to deforestation and replant wherever possible. On top of that, we must reduce our energy consumption and massively develop renewable energy sources.
The money exists
Implementing what should no longer be called a ‘transition’—rather an energy ‘switchover’—has however costs. These are not only to finance the plans announced by the United States and the European Union to halve their carbon emissions by 2030 but also to help developing countries, their economies devastated by the pandemic, 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 Joe Biden’s administration has announced it will tax the profits of the foreign subsidiaries of US multinationals at 21 per cent and called on the world to do the same, by adopting a global minimum corporate 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 per cent, it would have to pay the difference of 8.5 per cent 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 pressing, as global nominal tax rates on firms’ profits have fallen from an average of 40 per cent in the 1980s to 23 per cent in 2018. This means less revenue to finance public services, such as education and health, gender equality or the fight against climate change. On this trend, corporate taxation could fall to zero by 2052.
Not quite ‘historic’
Boosted by the US announcement, under the aegis of the Organisation for Economic Co-operation and Development (OECD) negotiations for the reform of the century-old international tax system have just reached an initial outcome, described by its signatories as ‘historic’. This is however far from the case.
The 133 states involved have agreed to tax multinationals based on objective in-country factors such as sales—making it harder to game the system by artificially locating profits in low-tax jurisdictions—although number of employees and access to resources should also be considered. But there would be thresholds, of sales of €20 billion and profits of 10 per cent, and the financial sector would be exempt. So fewer than 100 companies worldwide would be implicated in reality and the additional tax payments would go primarily to rich countries.
Worse, participants in the scheme would have to 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 would have to submit to international arbitration in the event of a dispute between their tax authorities and multinational companies, which they fear would be at their expense.
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That’s not all. The OECD agreement provides for a global minimum corporate tax rate of 15 per cent. This is a far cry from the US ambition of 21 per cent and even further from the 25 per cent that the Independent Commission on the Reform of International Corporate Taxation (ICRICT)—of which I am a member, along with the economists Joseph Stiglitz, Thomas Piketty and Gabriel Zucman, among others—advocates. Despite the highly unequal distribution proposed by the OECD, a global minimum of 25 per cent would bring in nearly $17 billion more per year for the 38 poorest countries than a rate of 15 per cent, enough to vaccinate 80 per cent of their populations against the coronavirus.
Again, all is not lost. Negotiations continue until next month and a group of rich countries (the US and Germany in particular) and developing countries (such as Argentina, South Africa and Indonesia) are determined to fight for a fairer reform.
Taxing multinationals better is a chance to avoid global heating with devastating consequences for humanity. The future is in our hands—but time is short.