In ‘Historic’ Deal, G7 Endorses Sweeping Global Economic Overhaul

Going forward, large, profitable multinationals may have a harder time reducing their tax bills, if G-7 nations have anything to say about it.

On Saturday, following a two-day meeting in London, finance chiefs including Janet Yellen announced a sweeping agreement which includes a commitment to a global minimum tax of “at least 15% on a country by country basis.”

UK Chancellor Rishi Sunak suggested officials achieved nothing less than the universal establishment of the “principle of fairness” (video below, from Bloomberg Quicktake).

Asked if 15% is too low, Sunak emphasized that the language stipulates “at least” 15%, but more broadly, he noted that “this is something that’s been talked about for almost a decade, and here for the first time today we actually have an agreement on the tangible principles of what these reforms should look like.” That, he remarked, is “huge, huge progress.”

This sets the stage for a more concrete agreement next month at the July meeting of G20 finance ministers and central bank governors.

Commenting in a statement Saturday, Yellen essentially declared the era of corporate globe-trotting in search of tax breaks over. The new accord “would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the US and around the world,” she said, adding that a floor for corporate taxes will “help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our work forces and investing in research and development and infrastructure.”

In some respects, the full communique could have walked out of a CFO’s nightmare. In addition to unveiling an agreement on a global minimum tax, the world’s most powerful finance chiefs said that from here forward, they’ll “properly embed climate change and biodiversity loss considerations into economic and financial decision-making, including addressing the macroeconomic impacts and the optimal use of the range of policy levers to price carbon.”

I’d note two things. First, the C-Suite (collectively) will praise some aspects of this preliminary accord, but mostly for PR purposes. No company will declare publicly an unequivocal aversion to efforts aimed at protecting the planet, for example. But don’t mistake public praise for genuine enthusiasm. If, on balance, it hurts the bottom line, it won’t be welcome internally. Second, the communique says “We commit” as opposed to “We are committed.” I’d argue that’s a meaningful distinction. “We commit” is a promise. “We are committed,” on the other hand, is something you hear all the time, usually in conjunction with virtue signaling.

Additionally, the G-7 will apparently establish a more aggressive framework for prosecuting climate “crime.” Specifically, the communique says that,

Environmental crimes have a serious impact on the planet’s biodiversity, generate billions of dollars in illicit finance and enable corruption and transnational organized crime. We agree that beneficial ownership registries are an effective tool to tackle illicit finance. We are implementing and strengthening registries of company beneficial ownership information to provide timely, direct and efficient access for law enforcement and competent authorities to adequate, accurate and up-to-date information, including through central registries.

References to things like “central registries” conjure Piketty, and ostensibly represent tentative steps towards a more coordinated, globalized economic regime.

Clearly, there are all manner of unanswered questions as well as myriad hurdles to implementation, not least of which is lingering ambiguity around tech giants and how to address profits generated digitally.

Donald Trump engaged in an (at times absurd) effort to demonize France’s controversial digital tax. Trump repeatedly emphasized that if anyone was going to single out America’s tech titans for onerous taxation, it was going to be him. “They’re American companies,” Trump said of Google, Twitter and Facebook in December of 2019. “If they’re going to be taxed, the US will tax them.”

“Yellen maintained the Trump-era position of opposing the singling out of US digital companies,” Bloomberg said Saturday. “The G-7 accord suggests the US and Europe have found a way to square the circle so that all tech firms are included, without having to define them as such,” the same linked article noted, adding that “there were no details on exactly where to set thresholds, which will need to be resolved in talks at the OECD that next convene at the end of June.”

It should be emphasized (again) that this is just a first step. But at the same time, it’s a giant leap. Effectively, the most powerful nations on Earth have collectively endorsed a sweeping effort to modernize the rules of the global economy, and the effort encompasses everything from taxation to climate change.

A wider agreement may not come until the fourth quarter, but this marks a notable pivot back towards multilateralism, something the communique was keen to emphasize. This accord, Yellen and her counterparts said, is “part of [a] renewed and urgent effort towards deeper multilateral economic cooperation.”