G-7 Begins Global Tax Battle

Here is today’s Foreign Policy brief: The G-7 agrees on a minimum global corporate tax rate, Peru’s presidential election is too close to call, and NATO Secretary-General Jens Stoltenberg visits Washington.

G-7 nations came to a landmark corporate tax agreement over the weekend, providing momentum for ongoing Organization for Economic Cooperation and Development (OECD) talks on a new global minimum rate and reviving the relevance of the G-7 ahead of a leaders summit in England later in the week.

The deal’s two pillars aim to tackle tax havens by reducing incentives for companies to “move” overseas in the first place. The first pillar establishes a 15 percent minimum global corporate tax rate while the second allows each country to collect tax on the profits made by large multinationals within that country rather than where the company may be headquartered.

The agreement has been sold as a way to help countries raise revenues as the COVID-19 pandemic strains resources. It’s also designed to address a decades-long race to the bottom on corporate tax rates and a simultaneous increase in companies booking profits overseas. The average global corporate tax rate was about 40 percent in 1980 and now stands at about 23 percent, according to figures compiled by the Tax Foundation. As globalization has increased, so has the amount of profit made overseas: In the 1990s, roughly 5 percent of corporate profits were made by companies outside of the country they were headquartered. That proportion jumped to roughly 18 percent in the 2010s.

As Michael Hirsh wrote in Foreign Policy last Friday, U.S. President Joe Biden’s team sees the new corporate tax plan as an indirect way of advancing his stated campaign goals of reigning in corporations and evening out the playing field for labor. “Every country is made worse off by tax competition, especially workers. … When people say they feel the system is rigged, and when you consider why we have such extreme inequality, tax is a big part of the story,” one Biden administration official told Hirsch.

Hailing the agreement as a “significant, unprecedented commitment” in a statement on Saturday, U.S. Treasury Secretary Janet Yellen said the agreement also showcased the Biden administration’s commitment to global cooperation. “I believe what you are seeing is a revival of multilateralism,” Yellen said. Along with lofty talk, the agreement also helps the United States stave off the rise of digital service taxes, which nearly half of European countries have proposed or implemented as a way to tax the (mostly American) tech giants.

Thumbs up from tech. That may be one way to explain the positive reviews from Silicon Valley. Facebook spokesperson Nick Clegg said the company wants “the international tax reform process to succeed and recognize this could mean Facebook paying more tax.” José Castañeda, a Google spokesperson, said those at the search giant “strongly support the work being done to update international tax rules.”

Over the first hurdle. It’s far too early for a Biden administration victory lap, however. A meeting of G-20 finance ministers in July will test the plan’s appeal to a broader group of nations. There are also the OECD negotiations themselves: Since the organization rules by consensus, a deal could be hamstrung by objections from tax havens. Finally, there is U.S. Congress, where at least one chamber may not even be in Democratic hands by the time the issue is up for a vote.

Setting the bar. The minimum corporate rate is still too low for some. “It’s absurd for the G-7 to claim it is ‘overhauling’ a broken global tax system by setting up a global minimum corporate tax rate that is similar to the soft rates charged by tax havens like Ireland, Switzerland, and Singapore,” said Gabriela Bucher, executive director of Oxfam. “They are setting the bar so low that companies can just step over it.”

U.S. Vice President Kamala Harris meets with Mexican President Andrés Manuel López Obrador, the day after talks with Guatemalan President Alejandro Giammattei.

On Wednesday, June 9, the Albanian Parliament votes on whether to impeach Albanian President Ilir Meta over allegations he failed to fulfill his constitutional duty to national unity by supporting an opposition party during elections in April.

Mongolia holds presidential elections, with former Mongolian Prime Minister Ukhnaagiin Khurelsukh considered the front-runner.

On Thursday, June 10, U.K. Prime Minister Boris Johnson hosts Biden for a meeting the day before the G-7 summit.

Talks in Vienna regarding a U.S. return to the 2015 Iran nuclear deal and the lifting of U.S. sanctions resume. This is the sixth round of discussions.

On Friday, June 11, Johnson hosts his counterparts from the United States, Canada, Italy, France, Germany, and Japan for the first G-7 leaders summit since 2019. Leaders from Australia, India, and South Korea have also been invited.

On Saturday, June 12, Algeria holds early legislative elections as part of Algerian President Abdelmadjid Tebboune’s efforts to quell protests over the pace of reforms.

Peru’s election. Peru’s ideologically polarized presidential election between socialist Pedro Castillo and conservative Keiko Fujimori is too close to call, according to unofficial results. A fast count by Ipsos showed Castillo ahead of Fujimori by 0.4 percent while an earlier exit poll showed Fujimori ahead by 0.6 percent. With only 42 percent of votes counted, Fujimori leads Castillo by 52.9 percent to 47.1 percent in the official tally.

NATO in Washington. NATO Secretary-General Jens Stoltenberg is in Washington today for talks with Biden, U.S. Secretary of Defense Lloyd Austin and U.S. National Security Advisor Jake Sullivan. The meetings come as the organization prepares for its first summit of the Biden presidency on June 14 in Brussels. Biden and Stoltenberg will discuss burden-sharing, cyberattacks, climate change, and “challenges” from Russia and China, White House Press Secretary Jen Psaki said on Friday.

The CDU’s lifeline. The Christian Democratic Union (CDU) scored a decisive victory in elections in the eastern state of Saxony-Anhalt on Sunday, boosting Armin Laschet’s hopes of inheriting the chancellorship from fellow CDU member Angela Merkel in national elections this September. According to one exit poll, the CDU improved its 2016 victory by six points, seeing off competition from the far-right Alternative for Germany party, which placed second. Despite a recent surge in national polls, the Green party placed seventh, portending future difficulty for the party in former East Germany.

Colombia’s unrest. Colombian President Iván Duque Márquez will ask lawmakers to approve new measures to address accusations of police brutality during weeks of protests that have morphed into an anti-government protest movement. The president is calling for increased oversight of police officers as well as better training after human rights groups reported dozens of killings at the hands of police in recent weeks. Negotiations between the government and protest leaders have stalled over disagreements between the two sides on preconditions for the talks.

The German army has more than troops to consider in its plans to withdraw from Afghanistan: 65,000 cans of beer (or roughly 60 beers per soldier), along with 340 bottles of wine remain in German military stores at its base in Mazar, Afghanistan, north of Kabul. The glut of drinks likely formed when Ansgar Meyer, the commander in charge, banned drinking alcohol during the last days of withdrawal (now expected to be completed in July). As Afghans are banned from consuming alcohol, leaving the cans behind is not an option. German military authorities must now decide whether to ship the beverages home along with their troops or dispose of them on site.