For those of us who desire to save the planet from global warming, there is only one international negotiation we should follow this year. This is not the United Nations climate change conference in November, COP26, in Glasgow. What to watch is a discussion of tax challenges arising from multinationals and digitalization in the OECD in Paris.
Before concluding that the above statements are absurd, consider this. The economic problem is essentially the same for both global warming and the taxation of multinationals: freelance riders. Both have the same emerging solution, based on principled and muscular unilateralism. It’s clearer and easier in the case of a tax than the climate. For this reason, an agreement is in Paris along the line The United States is currently proposing may point out the path toward the types of environmental solutions that are so far elusive.
Freelancers are important in combating rising temperatures, because global greenhouse gas emissions are the core issue. Countries and their populations know that if they make a special effort to be green, others will free ride or cheat in any transaction, so there is no incentive to do so. show the required effort. You can see the results clearly in the data. The concentration of carbon dioxide in the atmosphere is not deviated the march went up steadily after 30 years taking place at climate conferences of the United Nations.
For international corporate taxation, small countries are free to use the systems of their larger neighbors. By setting a lower percentage, they can attract profits and some affiliate businesses, because the loss of revenue from domestic firms is small compared to the profit from their profits. can attract. This calculation does not apply to large countries, so profits are transferred to smaller jurisdictions, weakening all countries’ ability to tax businesses.
Part of the solution the US is currently proposing to end the race to the bottom on corporate tax rates is an approach based on tough unilateralism. If small countries choose not to collect a lot of taxes from multinationals operating in their jurisdictions, then the holding company of the corporation – in the case of the US tech giants – will simply give yourself the right to tax those profits.
Tax havens don’t necessarily agree to the deal or are part of it, as long as most countries don’t allow companies to relocate their parent companies. If enough countries agree, jurisdictions with low tax rates will respond by charging a minimum fee instead of a free ride.
The climate solution is similar. For example, the UK is proud that it has cut greenhouse gas emissions nearly 50% since 1990, this is true on the basis of territorial emissions generated on UK soil. But British people now consume more carbon-emitting imported goods and services than they did in 1990. Including the amount of carbon embedded in imports, the UK’s footprint is 50% higher compared with emissions in its territory, and the reduction was much smaller. Official figures shows a 9% decline since this statistic was first collected in 1997.
A place where climate change meets business, market, and politics. Explore FT coverage here
If the UK and other major advanced economies want a higher price of carbon, which is essential to cutting greenhouse gases, they will need to ensure that domestic efforts do not simply generate emissions. in another country. That would require a carbon border tax on emissions embedded in imports to prevent consumers or companies from simply transferring carbon dioxide to jurisdictions with low carbon taxes, like dates Now they move their profits to countries with low corporate taxes.
Free ride would prevent a global treaty from being agreed, let alone running. But the principled and muscular unilateralism of the big players can work. This year’s test is international tax. If domestic or international politics discourage a tax deal in the OECD, we should also wave goodbye to the prospect of a solution to global warming.