The new global tax treaty is bad for development

In October 2021, G-20 leaders finalized a new global tax treaty aimed at curbing tax evasion by large multinational enterprises (MNEs). The agreement was brokered by the Organization for Economic Co-operation and Development (OECD) and ratified by 137 countries and territories (collectively called the group). Inclusive framework Or IF) Represents the most significant global tax reform of the decade. Among other features, the “IF Agreement” introduces new tax rights regardless of the physical location of an MNE and a new global minimum corporate income tax of 15 percent on the largest MNE.

The IF Agreement consists of two main pillars (Table 1): one pillar establishes new tax rights on a subset of large multinational companies (including ubiquitous digital giants such as Amazon, Google, and Facebook), and the other two pillars establish rates, rates and procedures. . For a new global minimum corporate tax (GloBE).

Table 1. New IF Global Tax Agreement at a GlanceAt a glance the new IF Global Tax Agreement

Source: Data drawn from OECD / G20 Base Erosion and Profit Shifting Project “Two Pillar Solutions to the Tax Challenges arising from the Digitization of the Economy”, October 21, 2021 and BEPS 2.0: All you need to knowKPMG.

A missed opportunity to increase development finance

Almost all stakeholders seem to agree that the IF Agreement represents a practical step in trying to reduce a “downward race” in global tax competition and refinement MNE taxation to better reflect the actual activities, sales and staffing of enterprises. By moving closer to a formulaic approach to global corporate tax allocation-instead of pretending to be a completely independent business of subsidiaries and affiliates উভ both critics and fans alike support the IF agreement’s approach, which seems to be moving away from traditional residential rules in an increasingly complex and digitalized world.

Unfortunately, when it comes to creating meaningful revenue benefits for the Global South, low- and middle-income countries (LMICs) are rightly alienated from the G-7 consensus that the IF Agreement offers a “fair solution” to redistribute taxing rights worldwide. While the G-7 countries have hailed the IF agreement as a step towards “ending the race for corporate taxation” worldwide, LMICs have expressed frustration and concern over the various inequalities embedded in the agreement – including Kenya, Nigeria, Pakistan and Sri Lanka’s refusal to sign. Currently, only 23 African countries are among the 137 countries and territories that are set to implement the global agreement – less than half of all countries and territories – and many LMICs are being warned to reconsider implementing the agreement.

Concerns include the first choice of high-income countries to collect additional “top-up” taxes on MNEs, lower minimum tax rates, creating a “run down” on corporate income tax rates, and forcing LMIC to abandon existing and future digital services. Tax MNEs in exchange for a new formula-based method of redistributing profits that could weaken their revenue base (Table 2). For the new GLOBE, the current Formula One G-7 will provide countries বাড়ি home to only 10 percent of the world’s population 60 an estimated 60 percent of the $ 150 billion new tax revenue. In fact, LMIC is being asked to make a blind leap of faith by signing a legally binding agreement to waive the right to pay certain taxes in exchange for completely uncertain, and potentially damaging, revenue results.

Table 2. Summary of the main LMIC concerns with the IF Agreement

Summary of the core LMIC concerns with the Institutional Structure Agreement Source: Author’s analysis.

Political headaches in implementing the IF agreement

There are real political challenges to adopting the IF agreement in the main OECD judiciary, especially in the United States, where the move faces opposition from Republicans and may require two-thirds Senate approval to pass. EU tax legislation requires the unanimous support of 27 member states, and there are several smaller low-tax countries, such as Estonia, Poland and Hungary, who are reluctant to move on the global minimum tax (column two and US priority) unless the EU gives equal priority to digital tax reform. (Column one and a slow motion). Last month, Poland vetoed the EU’s latest attempt to approve a new global minimum tax on this basis. This ongoing stalemate calls into question the overall fate of the IF agreement.

What will happen next to LMIC in global tax governance?

As the IF treaty faces potentially serious political challenges to implementation, it is best for LMICs to maintain their distance and refrain from taking steps to implement it on their own in the near term. This is especially true when it comes to eliminating existing or planned digital services taxes, as the United States and Europe are pressuring them with the potential for sanctions.

In an optimal case, the IF Agreement will help LMIC create a more permissive environment and momentum for them to introduce their own more aggressive anti-evidence measures, including revising their tax system to remove incentives and introducing minimum taxes with less legal threat. MNEs or steps from their own country. Similarly, frustration with the components and process of the IF Agreement seems to be driving the pace of broader global tax reform, including a more equitable way to engage LMIC as an equal stakeholder in a potential UN convention and tax governance debate. The G-20 may also have room for rescheduling the IF agreement as a preliminary “draft” and may be committed to reorganizing key sections with IF partners and resolving LMIC concerns over the next few years.

Significantly, the recent discussions at the IMF / World Bank’s spring meeting on additional assistance to the LMIC in tackling the economic crisis, loans, debt relief, and innovative financing, highlighted the importance of consolidating internal resources and, in particular, the importance of global tax regime. Correction. It is as if the G-20 donors, the international financial institutions and the private sector have all indirectly agreed that the IF Agreement and the (seriously less meaningless) Addis Tax Initiative have checked that box and there is no need for LMIC to do anything else. . There can be no more than this truth.

Going forward, the ongoing political debate over the merits and evolution of the IF Treaty cannot be left in the lurch — they must be deeply integrated into the broader multilateral dialogue on economic recovery, poverty reduction, and financial support for the Global South.

A Musk Inspired Anti-ESG Takeover Wave?

It’s fun to see memes advising Elon Musk to buy Alphabet, Amazon, Coca Cola, Disney, Meta, Netflix, YouTube, and more, but of course he can’t afford them. But We To be able to. We, I mean investors value. Musk’s purchase of Twitter has validated my critique of ESG-based investments (environment, social, governance) (see here, here, here and here), which currently has a weak financial record of nearly $ 2.7 trillion worldwide. And it demonstrates the potential strength of the anti-ESG fund, which I call the Friedman Fund after Milton.

An anti-ESG Friedman fund would, firstly, small companies be overvalued due to capricious or government-directed ESG metrics and buy undervalued companies due to the said metrics and secondly, buy the controlling interest of potentially valuable companies that are breaking even, Earnings, because they woke up, as Mask and his investors did recently.

The goal of the fund will be average risk-consistent returns, earning over a period of time.

The effect of the fund will be to increase financial market efficiency and economic productivity by punishing deviations from the process of rational valuation and rational business decision making.

The first method is widely called value investment. Although commonly understood by investors since at least the 18th century, Benjamin Graham popularized and measured the method in the first half of the 20th century. The bottom line is buying stocks when their market value falls below their reasonable price and selling or shortening them when their market value exceeds their reasonable price. Price investors tend to buy and hold, as long as the market price is close to the reasonable price, ignoring the price that the stock will look at in anything going to a skilled market.

The value of a stock may deviate somewhat from its reasonable value because investors like or dislike the company because of what it makes, or how it is made, or who runs it, or what its executives say or do. In other words, shares of “good” companies may benefit from the “hello effect”, while shares of so-called “bad” companies sometimes stagnate due to the “devil’s horn effect”. Some investors overestimate the importance of those soft factors over other investors, which makes them value the stock higher (hello) or lower (horn) than rational investors.

ESG funds and ESG ratings – directly or indirectly regulated by the Securities and Exchange Commission through bond rating agencies – can create significant halo / horn effects that value investors can exploit for their own gain while reducing the fragility of the financial system in the process. Since the ESG represents a political and essentially thematic concept, the ESG rating can be significantly detached from reality. If prices are not checked by investors, they could easily become bubbles (excessive investment in certain assets, such as dot com or mortgage-backed securities) or anti-bubble (very low investment in certain assets, such as fossil fuels).

ESG bubbles can be particularly costly because the extra investment can go to companies that actually harm the environment or the poor. As a scholar, writer like Ozzie Zehner The green illusionArguing, and Michael Moore has tried to explain the progressives, including in his 2019 documentary The human planet, Very few “green” technologies provide net environmental benefits because they are inefficient, rely on tax subsidies, require rare earth metals to operate, have major environmental side effects and much more. Similarly, as recently indicated by Harvard Business ReviewESG ratings are not related to good environmental or labor regulatory compliance!

Moreover, many social justice initiatives in large corporations, such as many government programs, help Democrat politicians but do little or nothing to help American Indians, blacks, Hispanics, women, or the poor. Once exposed, ESG darlings can become dogs overnight, hurt investors and lead to potential financial crises.

The second method that the Friedman Fund can take is usually frowning. Under the so-called Wall Street rules, investors who do not like management decisions should sell instead of adding flavor. This is a good rule of thumb because corporate management is usually well-received. Most stockholder proposals fail because managers dominate corporate choices due to proxy mechanisms and control over employee-owned shares.

Increasing voting, secret ballots, proxy mechanism reform, and changes to a few common rules, such as larger board members and executive stock holdings, will make pressure management easier for individual shareholders and institutional investors to maximize long-term stockholder returns. Business decisions, such as not isolating their middle customer to please vocal extremists.

Until then, the Friedman Fund must be willing to buy underchewing companies such as Twitter through controlling stakes, tender offers or proxy votes through stock market purchases. Yes, such strategies are often ridiculed as “corporate campaigns” but the poor state of corporate governance can make such campaigns economically necessary. In the 1980s and 1990s, funds led by corporate riders like Carl Eichan took over poorly performing corporations, and leverage buyout firms such as Kohlberg, Kravis, and Roberts revived the U.S. economy by forcing rational changes in stagnant or inefficient companies.

It was no accident that the classic film on corporate takeover, Other people’s money, Hit theaters in 1991. Its famous climax is Garfield Investments’ Lawrence “Larry the Liquidator” against Garfield (played by Danny Divito) and Andrew Jorgenson (played by Gregory Peck), the biggest employer, the head of the failed New England Wire and Cable Company. In a small Rhode Island town. At the company’s annual stockholder meeting, Jজrgenson, like other followers of the corporation’s “stakeholder” theory, argued that “a business is worth more than its stock price. This is where we make our living, where we meet our friends, our dreams.”

After ridiculing Jorgensen as a greedy, big-city corporate rider who “does nothing” and basically “kills”, Garfield responds:

This company is dead. I did not kill. Don’t blame me It was dead when I came here. It is too late to pray. Even if the prayer is answered, and a miracle happens, and the yen has done it, and the dollar has done it, and the infrastructure has done other things, we will still be dead. Do you know why Fiber Optics. New technology. Obsolescence. We’re just dead. We just didn’t break down. And you know the sure way to go break? Keep getting a growing share of the shrinking market. Tube down. Slow but sure.

You know, dozens of companies must have made boogie straps at one time. And I bet the last company was the one that made the best goddamn boogie strap you’ve ever seen. Now how would you like to be a stockholder in that company? You have invested in a business and this business is dead. Let’s keep the intelligence, keep the decency of signing death certificate, collect insurance and make some investment with the future. A

Me. I’m not your best friend. I am your only friend. I will not make anything? I’m giving you money. And lest we forget, that’s the only reason any of you became a stockholder in the first place. You want to make money! Don’t worry if they grow her and cables, fried chicken, or tangerines! You want to make money! I’m the only friend you have. I’m giving you money.

Take the money. Invest it somewhere else. Maybe, maybe you will be lucky and it will be used productively. And if that is the case, you will create new jobs and provide a service to the economy and, God forbid, even make some money for yourself. And if anyone asks, tell them you gave it to the plant.

That’s right, the mask game on Twitter is a bit different. Unlike boogie whips, microblogging is still not a ruined industry. But obviously, despite the great advantage of its first mover, Twitter was losing market share to direct competitors like Parlor, as well as new “social media” concepts like Clubhouse and Mastodon, as it was alienating many customers through its over-the-top censorship. Clearly true “misinformation” and opaque account closure and throttling. That’s what Musk meant when he told Twitter’s board that he could unlock the value of the platform in his offer letter. And it turns out that Twitter has increased its user base to over one million!

Many other companies have downplayed their potential in the name of progressive politics. When executives and board members earn large salaries but own little stock, they have strong incentives for small but vocal and even rogue progressive cables to downplay the value of their share price. If incentives cannot be better aligned between management and stockholders from the inside, then someone from the outside, such as Larry the Liquidator, Mask the Magician, or the Friedman Fund, must take steps to avoid the huge cost associated with the economy’s unused resources. .

Thanks to professional licensing rules (e.g., Series 65), various regulations and other startup costs, I can’t start a Friedman Fund myself. But I can and will invest in an efficient leadership, as many others are interested in benefiting Adam Smith and making him proud by reducing economic irrationality.

Robert E. Right

Robert E.  Right

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research.

He is the author (or co-editor) of more than two dozen major books, book series and edited collections, including AIER. Best of Thomas Payne (2021) and Financial exclusion (2019). He has also written numerous articles for (including) important journals, including American Economic Review, Business History Review, Independent review, Journal of Private Enterprise, Money reviewAnd Southern Economic Review.

Since taking his PhD, Robert has taught business, economics and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, University of Virginia and elsewhere. History from SUNY Buffalo in 1997.

Robert E. Wright’s book

Robert E. Get notifications of new articles from Wright and AIER.