Canada is one of 130 countries that have signed an agreement to establish a worldwide minimum corporate income tax rate.
The deal, negotiated by the Organization for Economic Co-operation and Development, has two parts.
First, a floor would be placed on the minimum corporate tax any country can charge. Set at 15 per cent, the purpose is to pressure so-called tax havens such as Bermuda, Ireland, the Cayman Islands and the British Virgin Islands.
These countries maintain very low tax rates to attract offshore development. But in doing so, they enable corporate giants to avoid paying their fair share. They also deprive other nations of investment within their own shores.
Second, the deal allows signatory countries to tax companies which have no physical presence in their jurisdiction, but which sell goods and services there.
Among the targets are social media giants like the so-called “Silicon Six.” It is alleged that between 2010 and 2019, Amazon, Apple, Facebook, Google, Microsoft and Netflix paid $155 billion less across all their global territories than local tax rates would have required.
The ability of large corporations to evade taxation is not in itself disputed. In the U.S., 60 of the largest corporations paid no federal income tax at all in 2018. Some actually received rebates.
The Canadian Revenue Agency reported that in 2014, Canadian companies avoided $11.4 billion in taxes they should have paid.
And the Parliamentary Budget Officer has calculated that Canadian firms transferred about $1.6 trillion in 2018 to low-tax countries. If just 10 per cent of those funds were shipped out to avoid paying taxes, the cost to the federal government would have been in the region of $25 billion. The provinces have also lost billions this way.
On the face of it then, the OECD deal makes sense. There is no question that large corporations have found multiple ways to get around paying their fair share.
Understandably, some of those companies disagree. They dispute the amounts in question, and insist they are doing nothing illegal.
In simple terms their answer is: “Hands up anyone who wants to pay more than the tax laws require.”
The other side of this argument is that signatory nations, if the agreement is sealed, are surrendering a portion of their sovereignty. Perhaps 15 per cent is a fair floor for now.
But what if the OECD raises it much higher in future? That might happen if an international consensus arose that international aid programs should be enriched, for example.
That may be an admirable goal, but shouldn’t such decisions be made by national parliaments, not international forums like the OECD?
We’ve seen one such development recently. The European Union is considering a proposal to tax imported goods based on the greenhouse gases emitted in making them.
That would give the EU authority to extend its taxing powers to every corner of the globe, based on policy objectives established without input from the countries affected.
A balanced view of this new approach to global taxation would be to welcome an end to the shameless trickery currently employed by large international corporations.
But it would also require a limiting mechanism. It is a historical truth that new taxation schemes, when first introduced, tend to start at the low end of the scale. But as time passes, they grow.
Corporate income taxes were introduced in Canada supposedly as a temporary measure to pay for the First World War. Of course, they became permanent, and rose over time.
Yet designing such a limiting mechanism will be no easy matter. With 130 countries at the negotiating table, the voice of any one member will tend to be muted.
The power of taxation is perhaps the most potent prerogative possessed by governments. We must be careful about how much of that power we relinquish.
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