Editorial | What’s Jamaica’s position on global tax plan?
Joe Biden’s push for countries to impose a minimum corporate income tax rate of 21 per cent, to halt what his administration says is a “race to the bottom”, appears to be gaining traction in many of the world’s wealthiest economies. The Biden plan would also eliminate tax credit for companies with respect to their report from those countries without the minimum rate.
Despite having members, such as Ireland, that have benefited from having low corporate tax rates, the European Union (EU), earlier this month, signalled its support of America’s proposal, but said that such a move should be under the umbrella of the Organisation for Economic Cooperation and Development (OECD). “We remain committed to ensuring that all businesses, including digital ones, pay their fair share of tax where it is rightfully due,” Daniel Ferrie, the European Commission spokesperson for EU-UK negotiations, said at a April 6 news briefing.
The International Monetary Fund (IMF), too, has backed the idea. “The IMF has been calling for a minimum global corporate income tax rate as a way to interrupt the race to the bottom in corporate income taxation,” the Fund’s director for fiscal affairs, Vitor Gaspar, said earlier this month. “And that is something which is important to ensure that governments have the resources needed for the various spending priorities that they have to serve.”
This week, Canada’s finance minister, Chrystia Freeland, suggested that Ottawa was on board with the Biden plan, telling the Financial Times newspaper she hoped a deal could be struck at the G20 summit in July.
The American proposals, on the face of it, are eminently sensible. They would limit the ability of multinational corporations to shuffle their income and profits around the world to take advantage of jurisdiction with lower tax rates, rather than paying the rates in their ‘home’ countries or in the markets where they actually made the money. It is the kind of activity that caused the economist and New York Times columnist Thomas L. Friedman to coin the term ‘leprechaun economy’ for Ireland, whose 12.5 per cent corporate tax rate had made it the headquarters for many of America’s big tech companies, although they do relatively little business there.
However, as much as this newspaper sees the broad merits of Mr Biden’s proposal, such as allowing firms to disproportionately shift fiscal burdens to employees, we are not certain that the interests of small countries like Jamaica and its partners in the Caribbean Community (CARICOM) are on the table, and appropriately protected in plurilateral negotiations among the world’s powerful economies. Indeed, this is broadly the same question we raised last December, and subsequently, when we urged the Jamaican Government to lead a CARICOM initiative to, if not protect domestic firms from ‘big tech’ companies and news aggregators – such as Amazon, Google and Facebook – have them pay domestic taxes and for content they hoover up.
Having Big Tech pay their fair share of taxes in countries where they earn the income, as well as compensate domestic media for content, have been contentious issues in several jurisdictions, including EU member states and Australia. Earlier this year, Canberra passed legislation to have the likes of Google and Facebook negotiate compensation deals with Australian media or have agreements imposed on them by official mediators.
SUCK CHUNKS OF ADVERTISING REVENUE
In the Caribbean, media enjoy no such protection against the ubiquitous might of the technology giants. They suck up huge chunks of the region’s advertising revenue, without the attendant costs for regional content. Neither do they pay taxes – of any kind – on the incomes they earn. Moreover, when hyperscalers like Google channel advertising to domestic digital platforms, they retain as much as 70 per cent of the cost of the placement.
In the age of globalisation, and with the world’s economy becoming increasingly digital, there is an ability of firms, in the absence of clear regulations, to become fluid shape-shifters with respect to how and where they apportion their income and profit. Jamaica cannot assume that because its corporate income tax rate is 25 per cent higher than the Biden proposal, it is automatically insulated from these concerns.
In any event, Jamaica and other small states have an interest in ensuring that there are credible and transparent arrangements which take account of their circumstances and do not preclude their ability to court investment. Unfortunately, we are not directly at the table in these plurilateral talks. That, however, does not mean that our voice should not be heard – collectively.
Indeed, if it has not yet happened, Jamaica should urgently rally its CARICOM partners, and others in the global South, to determine, and clearly articulate, what are our individual and collective interests and put before the OECD and G20 members. And we should not be quiet about it.
Perhaps the finance minister, Nigel Clarke, can articulate what steps, if any, he has taken along these lines, including any engagement he has had with domestic interests.