130 Countries Sign On to Historic Corporate Tax Deal

Here is today’s Foreign Policy brief: 130 countries agree to set 15 percent global minimum corporate tax rate following years of negotiations, German Chancellor Angela Merkel visits the United Kingdom, and Israel bombs Hamas targets in Gaza.

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On Thursday, 130 countries reached a historic corporate tax agreement, approving a proposal to set a minimum 15 percent corporate tax rate following years of negotiations led by the Organization for Economic Cooperation and Development (OECD).

EU foreign-policy chief Josep Borrell hailed the deal as a breakthrough for “better regulated globalization,” while U.S. President Joe Biden said it brings the world closer to halting “the race to the bottom” on corporate taxes as he offered a reminder of his campaign goal of delivering a “foreign policy for the middle class.”

Although the agreement brings more than 90 percent of the world’s economies together, there is still some ground to cover before it becomes a truly global agreement. Negotiators were successful in bringing multinational favorites like Switzerland and Barbados on board, but nine countries are still holding out—with the European economies of Estonia, Hungary, and Ireland among those yet to sign on.

Since the floor has been set so low, countries shouldn’t expect a major windfall. The deal could lead to a $150 billion increase in the global tax take starting in 2023, the OECD said in a statement. It did not mention that roughly 60 percent those new funds will likely be recouped by G-7 nations.

A higher minimum. Developing countries are still pushing for a higher minimum. In a statement, the 37 member states of the African Tax Administration Forum accepted the agreement in principle but vowed to continue its campaign to increase the minimum rate to at least 20 percent. A higher rate is essential for African nations, the group said, pointing to the larger reliance on corporate tax revenues as a proportion of the overall tax take in their countries than in more wealthy nations.

Shrinking tax rates. Still, it may help arrest a trend over the last several decades of declining corporate rates. According to the Tax Foundation, the average corporate tax rate globally was roughly 40 percent in 1980; that figure has dropped to 23.85 percent in 2020.

Merkel in the U.K. German Chancellor Angela Merkel travels to the United Kingdom today for her 22nd and likely her last official visit to the country before her term ends in September. Merkel is scheduled to meet with British Prime Minister Boris Johnson, Queen Elizabeth II, and will deliver an address to the British cabinet—making her the first foreign leader to do so since U.S. President Bill Clinton in 1997.

Her trip comes amid ongoing disagreement between the European Union and United Kingdom over the Northern Ireland protocol of the Brexit agreement, even as negotiators agreed to extend a grace period in the trade of certain goods on Wednesday. In a statement before her arrival, Johnson lauded Merkel for leaving the U.K.-Germany relationship “re-energized and re-invigorated for a new era.”

Israel bombs Gaza targets. Israeli fighter jets bombed a Hamas weapons factory in Gaza on Thursday night in retaliation for the floating of incendiary balloons into Israeli territory, Israel’s military said, the latest military operation conducted in Gaza since Prime Minister Naftali Bennett took office in June. Speaking on Thursday, Bennett said his government would “not hesitate” to launch a ground campaign in Gaza if necessary.

J&J and the delta variant. The Johnson & Johnson COVID-19 vaccine is effective against the delta variant of the virus, the company said on Thursday, easing concerns over its efficacy after vaccine-makers Pfizer, Moderna, and AstraZeneca had all shown data suggesting protection against the variant. The company also said its one-shot vaccine was effective for at least eight months after it was administered, a limit health planners must account for as vaccine stocks remain constrained in most countries.

Zuma’s countdown. Former South African President Jacob Zuma has until Sunday to present himself to authorities or face arrest after he was sentenced to 15 months in prison for contempt of court on Wednesday. Zuma’s foundation has called the judgment against him “emotional,” “angry,” and “not consistent with [South Africa’s] constitution.” Zuma’s lawyers have yet to formulate a response to the court’s ruling.

Pandemic travel. The World Health Organization called on Western nations to accept the vaccination status of those inoculated with WHO-approved Chinese vaccines, as cross-border travel opens up. Failing to do so, a WHO statement said on Thursday, “would effectively create a two-tier system, further widening the global vaccine divide and exacerbating the inequities we have already seen in the distribution of COVID-19 vaccines” and undermine “confidence in life-saving vaccines that have already been shown to be safe and effective,” the agency added.

Although the Chinese Sinovac and Sinopharm vaccines were found to be less effective than their Western counterparts, a WHO review found that both reduce the chances of hospitalization and death significantly.