The G7's proposed Global Minimum Corporation Tax - by Shineco Sutherland

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“G7 nations set minimum global corporate tax rate at 15 percent”

“G7 finance ministers agree global minimum tax of at least 15%”

“G7 agrees 'historic' global minimum corporate tax rate”.

These are a few of the headlines discussing the recent agreement by G7 members to mandate a minimum corporation tax of 15% for the global political and trading economy. As I perused some of these articles, my initial though was – this has interesting dimensions to it but first, I must set aside my dismay at the audacity of a global ecosystem which implicitly cedes power to this sub-set of these powerful nations at the expense of the less powerful. Having successfully convinced myself to do this setting aside, I proceeded to think about some of the different elements of this agreement by the G7 including the membership of this group as well as the positive and negative implications for developing countries and the Caribbean specifically. If you are interested in these considerations, please continue reading.

What is the G7? Is it a group of the world’s seven "most advanced economies": Canada, France, Germany, Italy, Japan, the United Kingdom and the United States of America. These countries are thought to account for 40% of global GDP and 10% of the world’s population. One might wonder why China and India are left out of this grouping but apparently, their per capita income (income theoretically allocated to each individual person) is too low to qualify for the group. The group emerged amidst the 1975 oil crisis which motivated the members to coordinate their macroeconomic strategies ostensibly to mitigate the recession of the day. Russia was subsequently added to the group but was later expelled for its annexation of Crimea from the Ukraine. The group is an informal arrangement and its decisions do not have direct legal implications. However, the political and economic power of the G7 confers power similar to that enjoyed by monopolies and oligopolies in markets. On the face of it, other nations which interact with the G7 are not legally bound to honor its proclamation or polices. However, realistically, since most socio-economic opportunities tend to be connected to the G7 countries, there will be unwritten rules which shatters the illusion of choice for non-G7 members.

The proponents of this minimum global tax regimes generally propose that firstly, "race to the bottom tax strategies will be eliminated". To the extent that this genuinely holds, it can be beneficial to Caribbean countries since they can increase their tax revenue where their rates were lower than 15%. Secondly, corporations would ostensibly be discouraged from shifting their revenue and profits to "lower tax jurisdictions" since the disparities between the tax regimes should be lowered. Undergirding these pillars of support for the proposed policy is concern by G7 countries on their ability to access more tax revenue. However, in the face of this, this author has the burning questions: isn't the fluidity of corporate operations and locations an inherent part of the capitalist ("free market") system  of which the more powerful amongst the G7 are the loudest proponent?👀👀 So why the sudden turnaround to focus on the inevitable outcome of said capitalist system, to target the least powerful in the equation (the nations courting investment via their tax regimes)? Also, would this policy be addressing the root problem of the prevailing capitalist system or one of its satellite outcomes?😕  For now, let's shelve these questions in the "discussion for another day" docket. Ultimately, this policy, when enacted, will reduce the policy space of Caribbean countries which already struggle with the same effect from other policies, depriving sovereign nations their rights to determine national policies for the benefits of its people - while it's left to be seen if the tax revenues collected via the new policy will offset that lost from legal loopholes in the G7's national jurisdictions. 

As such, this author proposes that whilst the justifications proposed for this new policy may seem reasonable, it is not the right tool for the underlying issue: an unwieldly capitalist eco-system which pursues all options legally available to protect its profit margins. 





 

 

 

 


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