Tax Deal or No Deal?

By John McDonnell MP

For years we held small meetings of tax Justice campaigners. They were attended by a combination of political activists, who were outraged at the tax avoidance, tax evasion and money laundering by the rich and corporations, and tax experts like John Christiensen and Prem Sikka.

Designing the solutions to tackling tax avoidance was not the problem. John and Prem and their teams of technical tax collection experts produced report after report demonstrating the measures that were needed.

The problem was getting anyone to take this issue seriously.

Then along came UK Uncut, a group of young activists, who launched a direct action campaign aimed at the tax avoiders and their facilitators in the City of London.

All of a sudden tax avoidance became a mainstream issue, covered by the mass media on a regular basis. Even the Tories had to acknowledge the issue and take some limited action to close down a few blatant tax avoiding loopholes.

Nevertheless, the City continued to serve as the funnel for funds from across the globe to be poured into, on their way into tax havens that are largely British overseas territories. The leaking of the Panama papers and many other sources exposed the scale of the avoidance and the central role played by the British finance sector.

With the massive growth in multinational and, in particular, high tech firm operations, the ability of these corporations to shift profits from high to low tax areas became a blatant, largescale tax scam.

The Tax Justice Network and other tax campaigners proposed a straightforward solution. It’s called TUMI.

Transparency, which is country by country public reporting of their operations and profits by multinationals.

Unitary Taxation, which is apportioning tax on profits to countries where real activities take place in both sales and employment.

Minimum Effect Tax Rates to prevent countries offering low rates.

Inclusion, which means the rules are set not just by the rich countries but by all countries via the UN.

This was largely the tax agenda Labour adopted when I was Shadow Chancellor. It formed the basis along with more detailed work for our Manifestos in 2017 and 2019. Prem Sikka and John Christiensen deserve the credit for this.

The costs of the pandemic and the arrival of the Biden administration have both forced the issue of tax reform onto the international agenda.

The fact that the G7 finance ministers even considered the issue and a batch of our solutions has to be welcomed.

But in welcoming the discussions that have taken place, we need to also recognise that as always the devil is in the detail.

Assessed against our TUMI agenda, there appears to be a commitment to country by country reporting to increase transparency.

On unitary taxation, there is confusion on how the level of profitability of the individual multinational corporations will be assessed along with the allocation to individual countries. The fear is that some firms like Amazon will not be covered and the richer countries where the firms are headquartered will be preferentially benefitted. 

 It’s also disappointing, but not unexpected, that the minimum level of corporation tax is being set at 15% and not he 21% Biden called for initially.

On the issue of inclusion, it is pretty clear that real decision-making is being kept within the G20 and then relayed into implementation via the OECD.

So where do we go from here?

First, do not underestimate what the valiant tax justice campaigners have achieved in forcing this key issue of global tax justice onto the international political agenda as a result of their decades of arduous and creative campaigning.

Second, recognise that this agreement, no matter how defective at the moment, is still a key breakthrough holding up the possibility of significantly enhanced tax justice, if its defects are addressed.

Third, appreciate that the key period is between now and the G20, when the current defects can be redressed, including closing the loopholes to ensure capture of all multinational profits and a fairer allocation of tax benefits.

Finally, it’s estimated that the tax reforms proposed could raise anything between $250 to $750 billion. So far, it’s been widely assumed that these tax revenues will flow back into the coffers of individual countries and there has been no discussion of other options for the application of these funds.

My view is that progressives should now be pressing for a discussion of not just how the taxes are collected but how they are spent.

We are facing the existential threat of climate catastrophe.

All or part of these additional revenues could provide the funding desperately needed in the global south to tackle climate change.

Placing these resources in a global climate change fund under the auspices of the United Nations could be the critical financial underpinning of the climate strategy we are pressing to be agreed at COP26 in November.

So let’s get to it.

Let’s campaign to overcome the defects in the tax reform plan proposed and call for the resources to be invested in a UN Climate Change Fund for COP26. 

Image: John McDonnell MP. Author: Sophie Brown, licensed under the Creative Commons Attribution-Share Alike 4.0 International license.

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