‘Seismic’ G7 tax deal is really one big nothing

The latest G7 agreement on global tax reform is more like a fantasy on steroids than a landmark deal.

US Treasury Secretary Janet Yellen speaks during a press conference after attending the G7 Finance Ministers meeting in London. Picture; Getty Images

Landmark – far less “seismic” – deal, my eye; fantasy on steroids more like it.

The G7 finance ministers announced over the weekend a claimed “seismic agreement” on global tax reform that they claimed would mean the largest multinational tech giants would pay their fair share of tax in the countries in which they operate.

These are the seven biggest countries in the developed world speaking – the US, the UK, Germany, Japan, Italy, France and Canada. For a while it had been the G8, when Russia was added, until Russia was “disinvited” in 2014 by the Obama administration.

So surely, the big tech billionaires will be quaking in their boots. The great and powerful have spoken. Their – undeserved – excessive wealth is now under direct threat. So presumably, the share prices of Facebook, Google, Microsoft and Apple will plunge when Wall St opens trading for the week Monday night.

Tens of billions of dollars will be stripped from the wealth of tech billionaires like Mark Zuckerberg, Larry Page and Sergey Brin – and from Bill Gates’s divorce settlement. Poor Melinda; she was that close; gee, if only she had filed a few years earlier.

Hmm; I don’t think so – when last I looked Wall St futures were trading serenely on. Big – sorry, seismic - deal to rip tens of billions of dollars a year from Big Tech? I don’t think so. Seismic deal, schmeismic deal.

US Treasury Secretary Janet Yellen speaks during a press conference after attending the G7 Finance Ministers meeting in London on June 5.

There were actually two supposed foundations to the deal. One is a global minimum corporate tax rate of 15 per cent on a country-by-country basis. As every developed country is above that – ours is 30 per cent – it’s a meaningless minimum.

It’s like agreeing that the minimum wage will be $6 an hour. In developed countries that would be utterly meaningless; it would also be meaningless in developing countries where wages are lower. Now, true, it’s supposed to abolish tax evasion and tax avoidance; to get companies to really pay at least 15 per cent tax on their (supposed) real profits.

Gee, who knew it could be that easy: seven flatulent finance ministers sitting around a table? Why didn’t somebody think of it 10, 20 or even 40 years ago?

The other, somewhat more complicated but equally meaningless ‘decision’ was “with market countries awarded taxing rights on at least 20 per cent of profit exceeding a 10 per cent margin for the largest and most profitable multinational enterprises.”

This is supposed to give – higher-taxing – countries the right to claw back tax on profits that were ‘shifted’ from their jurisdictions to lower taxing ones.

The complications involved in actually doing this in the real world boggles the mind. That it self-evidently didn’t boggle the minds of these politicians and their bureaucratic advisors tells you a lot, an awful lot, about their minds.

Physically, the meeting was held in London; in reality it was held on the Planet Zongo. None of it came even remotely close to really addressing the two core issues of company tax in the 21st century.

The first is defining taxable profit on which, of course, tax is levied, whether it is 15 percent, 30 per cent or 5 percent. The second is defining where a profit is made.

And that’s before you get to the myriad of complications countries add to their tax acts in and around corporate tax – like our franking credits, like development allowances, like accelerated depreciation, etc etc.

Have these doofusses ever looked at a Tax Act?

Profit is pliable and uncertain, revenue is clear-cut. You spend $100 on Amazon, that’s utterly unambiguous; but who knows whether Amazon has made $10 profit or $5 profit; and how much of it was made kin Australia and how much somewhere else.

The only way to develop a globally effective corporate tax system in the 21stg century is to focus on taxing revenue.

Originally published as ‘Seismic’ G7 tax deal is really one big nothing