Global Anti-Dumping Rules Affect States’ Tax Sovereignty

Monday, July 12, 2021

Lucas Leiroz, research fellow in international law at the Federal University of Rio de Janeiro.

The G20 has taken a historic step towards global corporate tax. The group’s finance ministers, and central banks’ presidents agreed during the last summit to profoundly review the international tax system and move forward with the project of a global minimum rate, pointing to 15% as an adequate value. With this, it is expected to combat companies’ migration to tax havens and thus generate more income for the States.

A few months ago, the American government proposed to implement a global minimum tax rate as a global solution to an increasingly common problem in the corporate scenario, which is the incessant search by large companies for more favorable fiscal сconditions abroad. US Treasury Secretary Janet Yellen has been the leader of this project, which has now ceased to be an exclusively American agenda and has become a global plan, supported by the G20.

The largest economies on the planet have recently completed the first stages of negotiations for the creation of the universal rate, agreeing with the value of 15% as the most appropriate. There are still many details to be discussed and resolved, which is expected to happen until 2023, when the plan will be implemented. New negotiations and discussions will be presented at the next summit, scheduled for October.

Certainly, some countries will demand specific international agreements for the implementation of the measure, not accepting a mere unilateral decision of the world powers but requiring favorable conditions in return for such changes in their tax regulations. With such a measure, the so-called “tax havens” will be required to adopt stricter tax laws, causing impacts on their economic scenarios – considering that such countries may become less attractive to foreign investment, which is why some of these nations will certainly make specific requests to the Organization for Economic Co-operation and Development (OECD).

It is unlikely that any truly “global” consensus will be reached in this sense, as the demands for tax collection are highly variable according to the economic, political and social conditions of each country, which means that some States will have their interests harmed, while others will profit. The US is the country that benefits most from the advancement of this agenda, as it is the nation most interested in collecting taxes from multinational companies. The American ambition is mainly due to Joe Biden’s Infrastructure and Climate Plan, which demands an increase in state earnings to implement several reforms. Currently, the Biden Administration plans to elevate the corporate tax from 21% to 28%.

Recently, other nations have also started to strongly defend the global tax, mainly Spain, Germany, Italy, and France. These countries published a joint letter last month proposing a reformulation of the global tax system, whose main targets would be the big technological multinationals. According to the leaders of these nations, tax legislation so far has been based on territorial and physical presence notions, which needs to change, adapting tax systems to the current dynamics of economic relations, increasingly restricted to the digital world. Large corporations transfer their physical facilities to tax havens and limit their activities in nations with high taxes to the virtual sphere, generating a great tax dumping. The biggest euro economies want to end this, which prompted them to support the global tax.

Undoubtedly, ending tax dumping is necessary and measures to do so are needed all around the world. What seems inefficient is the imposition of a global tax for this purpose, considering that it will affect the interests of many countries that, for various reasons, prefer to impose low taxes. For example, Ireland has applied a 12.5% tax since 2003, which is extremely low compared to other European countries, but which has allowed it to house headquarters of various tech giants such as Apple or Google. This serves Ireland’s current interests and harms the interests of the US, where Google and Apple originate. If Ireland wants to collect higher taxes to carry out social reforms, it is up to the Irish government to decide on that, but with a global tax, this change will happen immediately and compulsorily, even if it has nothing to do with current Irish strategic interests.

Above all, what seems to be happening is an imposition of interests by Washington and some European nations on the entire OECD. A more reasonable way to combat dumping would be to encourage regionally delimited tax reforms that more fairly serve local interests rather than setting unilateral global rules. Tax collection needs vary according to a series of circumstances that cannot be reduced to a mere “fighting dumping” speech. Some countries prefer to keep taxes low in order to attract investment to somehow take part on the profits of foreign companies and it is their right to do so. A country’s tax sovereignty should not be harmed by unilateral global norms.

Source: InfoBrics