More than a decade has passed without any progress in bringing the global tax system into the modern age. But less than three months after taking office, President Joe Biden has raised hopes of a breakthrough, with proposals that could kill tax havens dead and force multinationals to pay a fairer share of tax.
The change in tone could not be more marked. With last week’s proposal for a global minimum corporate tax rate, Washington has turned away from years of economic orthodoxy that stretched back to the early 1980s and prioritised a neoliberal world vision – of free-market competition, government indifference and unblinking advocacy of globalisation.
Under proposals submitted to tax negotiators from 135 countries at the OECD, the Biden plan would force big companies to pay taxes where their revenues are earned, not where the profits can be shifted to. It would also establish a global minimum tax rate, agreed by the world’s biggest economies.
This is a powerful development. For years, big companies have weaved a merry dance through a broken patchwork of international tax rules, advised by an army of lawyers and accountants on where to locate to reduce their bills.
The free-market economists favoured by presidents past would have argued for the advantages of globalisation: cheaper products, more choice. But profit-shifting by big companies – turbocharged in the digital age, with its unparalleled ease of doing business across borders – has left government coffers increasingly short. According to the Tax Justice Network, the sums lost to exchequers around the world have risen as high as £311bn annually.
This comes at a time when Covid is driving up national debts to eye-watering levels. Public anger at tax avoidance, and demands on companies to pay a fair share, have also risen since the 2008 financial crisis.
US multinationals are serious offenders. The proportion of gross profits they shift into tax havens has soared from 5-10% in the 1990s to between 25% and 30% today.
In a race to the bottom designed to attract big companies to competing jurisdictions, the average statutory corporate tax rate across 109 countries assessed by the OECD dropped from 28% at the turn of the millennium to 20.6% in 2020. This was a tactic ostentatiously deployed by George Osborne, who cut the UK rate from 28% a decade ago to the current level of 19% – with little apparent benefit.
Some digital companies pay even lower global effective rates (an average of the tax paid across all jurisdictions a firm operates in). Recent figures show Amazon pays 11.8%, Apple 14.4% and Facebook 12.2%.
For tax campaigners, the Biden intervention is a moment of hope. But the fear among progressives is that defeat will be snatched from the jaws of victory.
For Biden, ending the race to the bottom would help his administration raise domestic corporate taxes from 21% to 28% without big companies threatening to up sticks and locate profits elsewhere.
Much negotiation still remains to be done, not least on the rate at which a global minimum tax would be set. Washington wants 21% but several nations have much lower rates. An agreement among EU nations would not be easy, as rates range from 9% in Hungary and 12.5% in Ireland to 33% in France.
Might the agreed rate be so low as to make the initiative meaningless? Might there be too many exemptions?
Possibly, but the hope is that, with the US on board and a warm reception from France and Germany, jurisdictions hosting a large enough slice of global economic activity will sign – effectively forcing compliance. After decades on the road to nowhere, global tax reform may at last be within reach.
Cinemas and streamers fight like Godzilla v Kong
Saviours come in all shapes and sizes, and this time the all-conquering heroes have taken the shape of a dinosaur and a giant ape. Godzilla vs Kong has smashed through the pandemic torpor and paved the way to recovery for what has been stuttering global box office.
In its first week of release, the blockbuster pulled in more than £205m internationally, making it the best-performing debut since the pandemic began by some distance.
Faced with finances stretched to breaking point, cinema owners will be breathing a sigh of relief, hoping that this success is proof that moviegoers haven’t been permanently put off the big-screen experience.
Hollywood studios have taken advantage of cinema lockdowns to experiment with putting some films straight on to streaming services, but this has not been considered a major success. In the US, the world’s biggest movie market, Godzilla vs Kong was made available on WarnerMedia’s HBO Max service at the same time as in theatres, and the big screen held its own.
The $48.5m take for the first five days in the US, with only about half of screens open, has been seen as redemption following the flat box-office performance of would-be saviours Wonder Woman 1984 and Tenet earlier in the pandemic.
However, Hollywood studios have succeeded in their ambition of shrinking the once-sacrosanct exclusivity period that theatres enjoy from many months to a few weeks. In reality, it has always been the case that most films make the vast majority of ticket sales in a short period after premiere.
The pandemic has provided an unprecedented testbed for studios and fuelled an enforced boom in home-based entertainment.Director Adam Wingard promised that his film would be the definitive “decider” in the battle between Godzilla and King Kong. But cinema owners, streaming services and film studios may just feel that it has turned out to be a draw.
Deliveroo flotation should teach Sunak to keep his opinions to himself
One week on from Deliveroo’s car-crash of a flotation, the picture is getting worse. The shares fell by 10% on Friday to 254.5p, taking the tumble from the 390p listing price to slightly more than a third.
A fall of that magnitude should dispel any thoughts that the flop can be explained solely as a protest by old-school City fund managers against the supercharged voting rights that Deliveroo founder Will Shu awarded himself.
The governance set-up is indeed hated in many quarters, but online retailer the Hut Group also has a founder’s controlling share and that IPO flew out of the traps last year. Deliveroo seems a straightforward case of overvaluation at launch. Goldman Sachs and JP Morgan Cazenove, the investment banks running the listing, got their numbers very wrong.
Deliveroo still got its £1bn of fresh capital and so has the chance to redeem itself. It has just annoyed the 70,000 of its customers who bought shares. But Rishi Sunak, the chancellor, who foolishly fuelled the Deliveroo hype in the hope of rebranding the London stock market as magnet for technology companies, badly needs to rethink his tactics.
The first lesson the chancellor should learn is to keep his name away from individual stocks. Tech investing is a high-risk game. There will be big winners and big losers and, since the chancellor has no special skill in telling one from the other, it is very unwise to endorse specific companies on day one. Success for tech push will be judged by the number of companies coming to market.
The second lesson is that the biotech sector, rather than the gig economy, is more likely to be fruitful territory. In the past fortnight, Oxford Nanopore has chosen to list in London, while Vaccitech opted for New York. Sunak would do better to spend his time trying to improve that conversion rate. And doing it quietly, behind the scenes.
