Rich nations must be brought to book – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/opinion/rich-nations-must-be-brought-to-book/article37612930.ece

PORTRAIT

Tax wrangle   –  /iStockphoto

Whether it is the climate emergency, vaccine monopolies or letting MNCs off the tax hook, the rich countries should do more

The disappointing conclusion of the 26th United Nations Climate Change Conference’s last week in Glasgow is proof of great powers’ inability to assume their responsibilities to prevent the world from sinking into the abyss.

The calamitous management of the Covid-19 pandemic is another example. Rich countries have monopolised and hoarded vaccines, and then locked themselves in surreal debates about third doses or the comparative merits various vaccines. This strategy sows death and hinders economic recovery in vaccine-deprived countries, while making them fabulous playgrounds for the proliferation of more contagious, more deadly and more resistant variants that do not care about borders.

Finally, the agreement on the taxation of multinationals imposed by the Northern capitals, symbolises their selfishness and blindness. Concluded in October, it is a gigantic undertaking, the first reform of the international tax system born in the 1920s, totally obsolete in a globalised economy.

Tax revenue loss

Thanks to its loopholes, multinationals cause States to lose some $312 billion in tax revenue each year, according to the “State of Tax Justice in 2021” just published by the Tax Justice Network, the Global Alliance for Tax Justice and Public Services International.

If we add the tax evasion of the ultra-rich using tax havens, we arrive at a total loss of $483 billion. This is enough, the report reminds us, to cover more than three times the cost of a complete vaccination programme against Covid-19 for the entire world population.

In absolute terms, rich countries lose the most tax resources. But this loss of revenue weighs more heavily on the accounts of the less privileged: it represents 10 per cent of the annual health budget in industrialised countries, compared to 48 per cent in developing ones. And make no mistake, the people responsible for this plundering are mostly in Europe, first and foremost in the UK, which, with its network of overseas territories and “Crown Dependencies”, is responsible for 39 per cent of global losses.

In this context, the agreement signed in October is a missed opportunity. Rich countries, convinced that complying with the demands of their multinationals was the best way to serve the national interest, put themselves behind the adoption of a global minimum corporate tax of 15 per cent. The objective, in theory, is to put an end to the devastating tax competition between countries. Multinationals would no longer have an interest in declaring their profits in tax havens, since they would have to pay the difference with the global minimum tax.

In reality, at 15 per cent, the rate is so low that a reform aimed at forcing multinationals to pay their fair share of taxes risks having the opposite effect, by forcing developing countries, where tax levels are higher, to lower them to match the rest of the world, causing a further drop in their revenues. It is no coincidence that Ireland, the European tax haven par excellence, has graciously complied with this new regulation.

Rate too low

Taxation is the very expression of solidarity. In this case, the absence of solidarity. A global tax of 15 per cent on the profits of multinationals will only generate $150 billion, which, according to the distribution criteria adopted, will go, as a priority, to rich countries.

If ambition had prevailed, with a rate of 21 per cent for example, we would have obtained an increase in tax revenues of $250 billion. With a rate of 25 per cent, tax revenues would have jumped by $500 billion, as recommended by ICRICT, the Independent Commission on the Reform of International Corporate Taxation.

Making multinationals pay their fair share of taxes, fighting climate change, dealing with Covid-19 and future pandemics: in reality, everything is linked. While the virus is on the rise again with the arrival of winter in the northern hemisphere, the boomerang effect of the vaccine monopolies no longer needs to be shown or explained. As for the climate emergency, we know from a recent study by the World Inequality Lab that the map of carbon pollution is perfectly in line with that of economic disparities.

The richest 10 per cent of the world’s population emit nearly 48 per cent of the world’s emissions — the richest 1 per cent produce 17 per cent of the total! — while the poorest half of the world’s population is responsible for only 12 per cent. This gap is obvious between countries, but also within them. In the US, the UK, Germany and France, the emissions levels of the poorest half of the population are already approaching the per capita targets for 2030.

If we are failing to meet our commitments, it is because of a handful of the richest people, the same people who do not pay their taxes. It is time for our elites to realise that fighting inequality on all fronts — health, climate and tax — is our only way out. Otherwise, there is no salvation for humanity — and it is no longer a hyperbole.

The writer is with the Independent Commission for the Reform of International Corporate Taxation (ICRICT) and a former Member of the European Parliament

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