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G7: Racing to tax justice?

The week in corruption, 28 May 2021

The first G7 Finance Meeting under the UK Presidency took place on Friday, 28 May 2021. Photo: HM Treasury / Flickr

Transparency Int'l

It’s old news that large multinational companies often do not pay their fair share of taxes and get away with it. What’s new is that more governments are coming to realise that a corporate tax race to the bottom hurts the common good.

Finance ministers and central bank governors from Canada, France, Germany, Italy, Japan, UK and the US – collectively the G7 – are apparently closing in on a deal for countering abusive corporate tax practices. This could be big, as a consensus within the G7 could help boost international cooperation and pave the way for a global minimum corporate tax rate later this year.

But that alone won’t be enough to achieve tax justice.

First, as long as it’s possible to set up anonymous companies in so many countries around the world, multinational corporations will be able to continue shifting profits by opening up subsidiaries in jurisdictions with more favourable tax rates.

This is just one of the reasons why Transparency International representatives in all G7 countries are asking their finance ministers and central bankers to place particular emphasis on measures for tackling corporate secrecy during their deliberations.

Most G7 countries have already taken serious steps in this regard. But they currently have a perfect opportunity to use their clout to support the global adoption of beneficial ownership registers. Even better if the registers are required to be made public, like in the EU.

Second, lack of country-by-country reporting rules for corporations will continue to undermine tax justice unless all major financial centres require multinational companies to disclose where and how much tax they pay.

Just this week, EU-based civil society organisations and trade unions sounded the alarm over the “half-hearted text” and watered-down draft legislation that is meant to finally extend country-by-country reporting rules – that have applied to EU banks since 2015 – to all multinationals.

Finally, governments all over the world promote corporate tax incentives as a tool to attract domestic or foreign investments, even if there is no clear evidence that this works. And as our new report shows, industries and corporations can and do exert undue influence – from corporate lobbying to political finance and hiring professional service providers – to reduce their tax bills.

Tax incentives designed and granted at the behest of special interest groups are not just a corruption weak spot. They can also undermine the financial basis for achieving social and economic justice. Our new report shows that harmful tax regimes are thriving due to weak national laws, lack of global norms on corporate political donations and conflicts of interest between the business world and public officials.

Powerful player, smaller bill: Risks of corruption in governments’ tax policies

It is imperative that discussions around the future of the global tax system account for these realities, if we are to achieve fairer tax systems that provide the financial basis for achieving social and economic justice.

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