Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

To stop global heating, tax multinationals better

Eva Joly 22nd September 2021

The rapid, radical decarbonisation needed to save the planet will cost a lot. Taxing multinationals and the wealthy properly can help pay for it.

‘A code red for humanity’: the United Nations secretary-general, António Guterres, could not have better summed up the chilling impact of the report published by the Intergovernmental Panel on Climate Change (IPCC) in early August. Natural disasters, water shortages, forced migrations, malnutrition, pandemics, species extinction—it is scientifically established that life on earth as we know it will be inescapably transformed by climate disruption when children born in 2021 turn 30.

This is already happening, as illustrated this summer by the rainfall that has plunged China and Germany into mourning, the burning forests from north America to Siberia and the increasingly devastating hurricanes in the Caribbean. This will now be our lot, with unprecedented human consequences, even in rich countries. In Europe already 3,000 die on average each year due to climate extremes. If no action is taken this is expected to rise to around 100,000 by 2050 and 150,000 by the end of the century.

There is still a window of opportunity to avoid the worst by limiting global heating to 1.5C from the pre-industrial era, to which the Paris Agreement aspired. But this window is closing. We must urgently and radically decarbonise our economies, put an end to deforestation and replant wherever possible. On top of that, we must reduce our energy consumption and massively develop renewable energy sources.

The money exists

Implementing what should no longer be called a ‘transition’—rather an energy ‘switchover’—has however costs. These are not only to finance the plans announced by the United States and the European Union to halve their carbon emissions by 2030 but also to help developing countries, their economies devastated by the pandemic, to do the same.

The money exists, so we must go and find it where it is—in the accounts of multi-millionaires hidden in tax havens and especially those of multinationals which, for decades, have not paid their fair share of taxes. This is why Joe Biden’s administration has announced it will tax the profits of the foreign subsidiaries of US multinationals at 21 per cent and called on the world to do the same, by adopting a global minimum corporate tax rate. In concrete terms, if a US multinational declares its profits in a low-tax country, such as Ireland, where it would only pay a rate of 12.5 per cent, it would have to pay the difference of 8.5 per cent to the American tax authorities.

With this initiative, Washington wants to put an end to tax havens and the race to the bottom in corporate taxes. This is pressing, as global nominal tax rates on firms’ profits have fallen from an average of 40 per cent in the 1980s to 23 per cent in 2018. This means less revenue to finance public services, such as education and health, gender equality or the fight against climate change. On this trend, corporate taxation could fall to zero by 2052.

Not quite ‘historic’

Boosted by the US announcement, under the aegis of the Organisation for Economic Co-operation and Development (OECD) negotiations for the reform of the century-old international tax system have just reached an initial outcome, described by its signatories as ‘historic’. This is however far from the case.

The 133 states involved have agreed to tax multinationals based on objective in-country factors such as sales—making it harder to game the system by artificially locating profits in low-tax jurisdictions—although number of employees and access to resources should also be considered. But there would be thresholds, of sales of €20 billion and profits of 10 per cent, and the financial sector would be exempt. So fewer than 100 companies worldwide would be implicated in reality and the additional tax payments would go primarily to rich countries.

Worse, participants in the scheme would have to commit to abandoning taxes on digital companies, depriving themselves of precious resources. This explains why two major African economies, Kenya and Nigeria, have refused to endorse the agreement. And developing countries would have to submit to international arbitration in the event of a dispute between their tax authorities and multinational companies, which they fear would be at their expense.

Far cry

That’s not all. The OECD agreement provides for a global minimum corporate tax rate of 15 per cent. This is a far cry from the US ambition of 21 per cent and even further from the 25 per cent that the Independent Commission on the Reform of International Corporate Taxation (ICRICT)—of which I am a member, along with the economists Joseph Stiglitz, Thomas Piketty and Gabriel Zucman, among others—advocates. Despite the highly unequal distribution proposed by the OECD, a global minimum of 25 per cent would bring in nearly $17 billion more per year for the 38 poorest countries than a rate of 15 per cent, enough to vaccinate 80 per cent of their populations against the coronavirus.

Again, all is not lost. Negotiations continue until next month and a group of rich countries (the US and Germany in particular) and developing countries (such as Argentina, South Africa and Indonesia) are determined to fight for a fairer reform.

Taxing multinationals better is a chance to avoid global heating with devastating consequences for humanity. The future is in our hands—but time is short.

corporate tax,taxing multinationals,tax multinationals
Eva Joly

Eva Joly is a member of the Independent Commission for International Corporate Tax Reform (ICRICT) and a former member of the European Parliament, where she was vice-chair of the Commission of Inquiry into Money Laundering, Tax Evasion and Fraud.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko
u4219834664e04a 8a1e 4ee0 a6f9 bbc30a79d0b1 2 Closing the Chasm: Central and Eastern Europe’s Continued Minimum Wage ClimbCarlos Vacas-Soriano and Christine Aumayr-Pintar
u421983467f bb39 37d5862ca0d5 0 Ending Britain’s “Brief Encounter” with BrexitStefan Stern
u421983485 2 The Future of American Soft PowerJoseph S. Nye
u4219834676d582029 038f 486a 8c2b fe32db91c9b0 2 Trump Can’t Kill the Boom: Why the US Economy Will Roar Despite HimNouriel Roubini

Most Popular Articles

startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer
u421983467 2a24 4c75 9482 03c99ea44770 3 Trump’s Trade War Tears North America Apart – Could Canada and Mexico Turn to Europe?Malcolm Fairbrother
u4219834676e2a479 85e9 435a bf3f 59c90bfe6225 3 Why Good Business Leaders Tune Out the Trump Noise and Stay FocusedStefan Stern
u42198346 4ba7 b898 27a9d72779f7 1 Confronting the Pandemic’s Toxic Political LegacyJan-Werner Müller
u4219834676574c9 df78 4d38 939b 929d7aea0c20 2 The End of Progess? The Dire Consequences of Trump’s ReturnJoseph Stiglitz

KU Leuven advertisement

The Politics of Unpaid Work

This new book published by Oxford University Press presents the findings of the multiannual ERC research project “Researching Precariousness Across the Paid/Unpaid Work Continuum”,
led by Valeria Pulignano (KU Leuven), which are very important for the prospects of a more equal Europe.

Unpaid labour is no longer limited to the home or volunteer work. It infiltrates paid jobs, eroding rights and deepening inequality. From freelancers’ extra hours to care workers’ unpaid duties, it sustains precarity and fuels inequity. This book exposes the hidden forces behind unpaid labour and calls for systemic change to confront this pressing issue.

DOWNLOAD HERE FOR FREE

ETUI advertisement

HESA Magazine Cover

What kind of impact is artificial intelligence (AI) having, or likely to have, on the way we work and the conditions we work under? Discover the latest issue of HesaMag, the ETUI’s health and safety magazine, which considers this question from many angles.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
How are minimum wage levels changing in Europe?

In a new Eurofound Talks podcast episode, host Mary McCaughey speaks with Eurofound expert Carlos Vacas Soriano about recent changes to minimum wages in Europe and their implications.

Listeners can delve into the intricacies of Europe's minimum wage dynamics and the driving factors behind these shifts. The conversation also highlights the broader effects of minimum wage changes on income inequality and gender equality.

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Spring issue of The Progressive Post is out!


Since President Trump’s inauguration, the US – hitherto the cornerstone of Western security – is destabilising the world order it helped to build. The US security umbrella is apparently closing on Europe, Ukraine finds itself less and less protected, and the traditional defender of free trade is now shutting the door to foreign goods, sending stock markets on a rollercoaster. How will the European Union respond to this dramatic landscape change? .


Among this issue’s highlights, we discuss European defence strategies, assess how the US president's recent announcements will impact international trade and explore the risks  and opportunities that algorithms pose for workers.


READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641