The Global Minimum Tax:
Blessing or Curse?
The Group of Seven nations — Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States — agreed on June 5, 2021 to promote a new global tax system. The Organization for Economic Cooperation and Development (OECD) announced on July 1, 2021 that 130 of the 139 countries comprising the organization’s “Inclusive Framework” had joined the G7 agreement. Technical details remain to be resolved. The OECD expects to conclude final negotiations in October and begin implementing the plan in 2023.
The twin goals of the tax scheme are already clear: (1) to require large transnational corporations to pay more tax where they conduct their economic activities, and (2) to reduce the attractiveness of tax havens.
The first “pillar” of the proposed global tax system would transfer transnational companies’ profits from their home countries to the countries in which they make sales. Transnationals often establish their tax homes in countries with low corporate income tax rates, even though most of their economic activity occurs in countries with higher rates. For example, assume large company Mega Corp. treats a country called Utopia, which has an 11% corporate income tax rate, as its tax home but conducts most of its sales in another country, Lilliput, which imposes corporate income tax at a rate of 21%. Mega Corp. saves money by being taxed in Utopia rather than Lilliput, even though it probably receives greater benefits from Lilliput in the form of infrastructure and social services. The revamped global system would reallocate at least 20% of Mega Corp.’s profits above a 10% margin to Lilliput, where they would be taxed at 21% rather than 11%.
The system’s second “pillar” would set a global minimum tax rate of 15% for companies. In the example above, Mega Corp. would still pay a share of its taxes to Utopia, even after some of its profits are “rebooked” to Lilliput. Assume that Utopia retained its 11% corporate tax rate after the 15% global-minimum-tax system goes into effect. The system would entitle Lilliput to “top up” Mega Corp.’s overall tax liability by collecting tax at a rate of 4% on Mega Corp.’s profits that Utopia is already taxing at 11%. The 4% rate represents the difference between Utopia’s rate and the global-minimum rate.
Wealthy economies agreed to the global minimum tax proposal, and they are the economies that are promoting it. The G7 and G20 members are weary of seeing profits made within their borders and in reliance on their services escape the grasp of their tax systems. The International Monetary Fund says the use of tax havens — perfectly legal in many cases — costs governments worldwide between $500 billion and $600 billion in lost revenue each year.
But that is not the whole story of the harm caused by tax havens. The International Monetary Fund (IMF) says that of the annual revenue lost to tax havens, $200 billion is lost by less-developed countries. That represents “a larger hit as a percentage of GDP than [in] advanced economies,” according to the IMF.
The G7’s global minimum tax may not significantly curtail the use of tax havens. A Reuters report suggests that tax havens like the Cayman Islands would offer enough incentives and exemptions to retain “its pet sector of hedge funds and other investment firms” — even if its government adhered to an international minimum rate.
There is no guarantee that a global minimum rate of 15% would shift investment from current tax havens to less-developed countries that have previously not competed for foreign investment by joining the “race to the bottom” in corporate rates. The G7 proposal may end up primarily benefiting…well, the G7. Time will tell.
The more immediate question is whether joining the race makes sense for less-developed countries in the first place. In other words, is the “race to the bottom” doing anybody other than the Mega Corps. of the world any good? The IMF and the Bank for International Settlements think the answer may be no. They believe that “financial sector growth is beneficial up to an optimal point, after which it starts to harm economic growth.” In addition, the “finance curse” can easily lead to the “paradox of poverty in the midst of plenty” by draining talent away from government and industry into “the high-paying dominant sector,” causing inflation and rent-increases, and triggering boom-bust cycles.
Developing economies face enormous pressure to attract foreign capital. They cannot be faulted for this desire. In a neoliberal global context, obtaining foreign capital seems like the recipe for economic growth and improved living conditions. But political philosopher Gillian Brock and tax expert Rachel McMaster argue that “fundamental factors such as quality of institutions, basic infrastructure, stable government, sound fiscal conditions, available labor force, respect for the rule of law, accountability, and so forth” are “much more important in developing states.”
Therefore, even if no benefits accrue to most less-developed countries, the global minimum tax rate has the potential to eliminate the temptation for other less-developed countries to join the race to the bottom. An international minimum rate might even bring about beneficial policy changes in current tax havens. A 2018 report by none other than the government of Bermuda, issued after consultation with local and international businesses, concluded that “Bermuda’s tax structure was neither fair nor equitable” and that it “placed a disproportionate burden of tax on those least able to pay.” If Bermuda, which prides itself on attracting companies “that have boots on the ground,” realizes that its tax system “is hard on its working-class” citizens, then how much more clearly should tax havens “that have more corporate mailboxes than people” see the need for change?
The ethical issues surrounding tax havens have caught the attention of investors, particularly in the Nordic countries. Norway’s $1.3 trillion sovereign wealth fund, for instance, has sold its shares in seven unnamed companies because of their “aggressive tax planning” and lack of tax transparency. The pressure is starting to grow outside of Scandinavia as well. A Reuters story reports the head of equities at Royal London Asset Management as saying that his pension clients are increasingly likely to request that he sell — or not buy — shares in companies that use tax havens to lower their tax bills.
However, even assuming a global minimum tax can produce a more ethical international arrangement, does implementation of the tax raise another ethical problem — that of national sovereignty? The government of Bermuda thinks so. The island nation’s finance minister, Curtis Dickinson, said in an interview with the Financial Times, “Bermuda has a right to determine for itself what it thinks is an appropriate tax system for its jurisdiction…. I would say it’s a sovereignty issue.” Perhaps no greater mark of political sovereignty exists than a government’s authority to impose the taxes it chooses on the base it identifies at the rate it elects and in the manner it determines.
From the standpoint of Christian political theology, then, the question breaks down into two sub-questions: (1) Are Christians in advanced economies called to try to improve the economic conditions of people in less-developed countries? and (2) If so, should Christians consider political pressure exerted by wealthy nations across international borders a good and right way to try to improve those conditions?
For two millennia, material abundance has been a fraught subject for Christians. In the first place, the salvation that abundance brings is ambiguous. It can give us either “Hiroshima or useful energy,” Jesuit priest and theologian Jon Sobrino writes (538). Economic “salvation” arrives “mixed with sinfulness.” The world of the “nonpoor,” Sobrino says, sometimes bestows its abundance on the poor in an ethical way but at other times spreads an evil prosperity instead (538).
However, as Peter Sedgwick, former Policy Advisor in the Church of England Public Affairs Unit, argues, not only is severe need a crisis in itself but material deprivation in general generates other kinds of crises that Christians must find unacceptable. Material deprivation in developing nations leads to violence as it increases conflicts of several kinds, especially civil wars (492). Even if, as Sobrino suggests, salvation of a sort comes from the world of the poor — a salvation that comes as an opportunity to overcome “dehumanization” and point the way to human solidarity — poverty itself remains intolerable and cries out for economic, political, and cultural solutions.
Christians everywhere may disagree with non-Christians and with each other about the “goods” that increased material prosperity should promote. That divergence, which is really a species of disagreement on what human flourishing is supposed to look like, need not deter believers from working toward ensuring that all people have a minimum of “natural goods.” Philosopher Martha Nussbaum uses the phrase “natural goods” to refer to central human “capabilities” that governments can and should support. She hopes and believes that people of all faiths and persuasions can agree that capabilities such as life, health, freedom from violence and abuse, and liberty of conscience and expression are necessary objectives even if they do not share the same understanding of a complete good life (494).
The opportunity presented by the prospect of a global minimum tax brings us to the second political-theological question: What are Christians to make of recommendations from international institutions restricting all countries’ internal policy making decisions?
To be sure, the G7 proposal is tinged with the flavor of old-style imperialism. This attempt by nations like the United States to bring low-tax jurisdictions into line to stem the flow of potential revenue away from wealthy nations is a form of cross-border control. But an arguably more sinister form of imperialism is at work, and the global minimum tax offers a corrective to it. “Neo-colonization,” as theologian Musa Dube calls this new version of imperialism, excludes government to some extent “as nongovernmental economic forces exercise domination (often with governmental assistance) without physically occupying poorer regions (595). Neo-colonization refers to the process of transforming the world into one financial and capital market, i.e., the process of globalization (595). The G7 and G20 may be instruments of that process, but Amazon, Apple, Facebook, Alphabet, and Microsoft are probably worse offenders. At the very least, Sedgwick writes, the “monopoly power of large corporations” controls poorer nations’ access to new technologies and applies “lower standards of corporate responsibility” in those nations (493). Although cooperation among governments may threaten to further erode the local nature of culture and religion (595-96), it also offers the chance to break the corporate grip that not only undermines local culture and religion but also restricts human flourishing of the sort Nussbaum envisions in her “capacities” approach.
Sedgwick notes that John Rawls located justice in two places: within the nation-state and between states and societies. But because Rawls’s justice-as-fairness depends on political institutions, what universal institutions — Sedgwick asks — exist to implement justice as Rawls conceived of it? Sedgwick concludes that such institutions “manifestly do not exist” (495). Whether or not Sedgwick’s conclusion is correct, it points to a kind of “justice vacuum” in the gaps between nation-states. Transnational corporations are all too eager to fill the void with what seems a neoliberal parody of justice, a true “in-justice.” A formal international agreement on the global minimum tax would not rise to the level of a cross-border institution capable of setting up a Rawlsian framework of international justice, nor should it do so. It may, however, liberate some nation-states from neo-colonization so they can turn their attention to providing “natural goods” for their citizens.
That development should be important to all people of faith. By opening up space for developing nations to build on the cultures and religions found within their borders, the incentives and disincentives shaped by a global minimum tax can foster justice fashioned more out of local identities and less by alien corporations (495-96).
If this essay seems to have strayed from its original focus on the global minimum tax into broader issues of political theology and globalization, it does so to suggest that Christian resistance to global political institutions is sometimes misplaced. The global-minimum-tax question may come down to this: Should the political will of developed nations end up serving (whether deliberately or not — that is irrelevant) the corporate powers to which those nations are becoming beholden or end up serving developing nations as they foster types of human flourishing other than those shaped by wealth-seeking business entities?
Christian believers would do well to move beyond Kantian and utilitarian assumptions when imagining political arrangements that set the conditions for justice within and among nations. The difficulty with those assumptions is that they depend on universal mechanisms to impose one set of conditions on everyone. In the Kantian or utilitarian imagination, those mechanisms are sophisticated policymaking institutions, either nation-states or international bodies modeled on the nation-state. In reality, the universal mechanisms of our world are more likely to resemble Mega Corp. supported by one or more “market states.”1Bobbitt describes the market-state as the nation-state’s successor. The former’s goal was to provide for its citizens’ welfare; the latter exists to maximize economic opportunity for the members of society. The market-state seeks only choice, not well-being. In the American context, its objectives include limiting the percentage of GDP taken by government, capping tax rates, striking down affirmative action plans, limiting the federal power to regulate commerce, and lifting sanctions against abortion and contraception (230). The market-state “is largely indifferent to the norms of justice, or for that matter to any particular set of moral values so long as law does not act as an impediment to economic competition” (230).
If tax-policy decisions shift slightly away from the nation-state model to more ambiguous and collaborative international institutions, then perhaps that shift presents an opportunity for Christians to liberate their own thinking from assumptions that owe too much to the Enlightenment. ♦
The author would like to thank Professor Andrew Hayashi, of the University of Virginia School of Law, for his valuable editorial input, suggestions, and ideas for resources, all of which have greatly improved this article. Mistakes, however, are all my own.
Allen Calhoun’s career has followed parallel tracks, one in the law and legal publishing field and the other in academics and higher education. He has, among other degrees, a PhD in theological ethics and an LLM in taxation and is currently putting both to use as a McDonald Distinguished Fellow at Emory University’s Center for the Study of Law and Religion and an adjunct professor of ethics and philosophy at Averett University.
Calhoun, Allen. “The Global Minimum Tax: Blessing or Curse?” Canopy Forum, July 27, 2021. https://canopyforum.org/2021/07/27/the-global-minimum-tax-blessing-or-curse/