Good morning. David Meyer here in Berlin, filling in for Alan.
A global taxation agreement is now within sight, with the G20 likely to sign off next week on a deal that’s been endorsed by 130 countries and jurisdictions. The minimum-rate pact would be truly groundbreaking—a serious blow to the practice of profit-shifting, forcing large multinationals (including Big Tech) to pay an effective rate of at least 15%.
The arrangement, announced on Thursday, could be finalized by October, with implementation following in 2023.
However, many countries’ endorsement remains tepid, because it is likely to massively favor the world’s richest countries, where most of these multinationals are based. Some countries have also not agreed to the deal, because they don’t want to have to raise their multinational-attracting low corporate tax rates.
A quick reminder of the two core “pillars” of this deal: Pillar One gives some taxing rights to the countries where the multinationals operate, though most of the cash can be claimed by the companies’ home countries; Pillar Two sets the 15% floor, which OECD Secretary-General Mathias Cormann noted “does not eliminate tax competition, as it should not.”
The Indian government has signed up to the deal, but on Friday it made it clear that more needed to be done.
“Some significant issues including share of profit allocation and scope of subject to tax rules, remain open and need to be addressed,” it said. “The solution should result in allocation of meaningful and sustainable revenue to market jurisdictions, particularly for developing and emerging economies.”
The African Union and the African Tax Administration Forum (an organization representing African tax authorities) are also calling for changes. They’re essentially complaining that the 30% cap on locally-taxable profits isn’t enough to provide a “meaningful reallocation of profits to market jurisdictions.” They also want to see Pillar Two’s minimum tax rate raised to 20%.
“There is still further work that needs to be done to finalize the new rules and even when finalized we consider there is still much more work to be done to ensure a more equitable tax allocation and to stem illicit financial flows from Africa,” ATAF said in a Thursday statement. Nigeria and Kenya, two of Africa’s biggest economies, have so far refused to back the deal at all.
“Can a global minimum tax really survive, if it gives so disproportionate a share of the revenue benefits to the richest headquarters countries?” tweeted Alex Cobham, the CEO of the Tax Justice Network. “And can the OECD maintain its position as a rich country club, setting the rules for everyone, when what it delivers is so unequal?”
Meanwhile, on the other side of the debate, some European low-tax jurisdictions such as Ireland (12.5% corporate tax rate) and Hungary (9%) have also refused to sign up. Irish Finance Minister Paschal Donahoe said the country was “not in a position to join the consensus,” but Ireland—an international base for Big Tech—would still push for a deal it can support.
Another issue that’s yet to be resolved: Amazon. Countries would get local taxation rights on large multinationals’ profits above a threshold of 10%, but Amazon’s global operating margin is only slightly above 7%. So an exception is being considered that could target specific businesses within companies in this position, if they individually clear the threshold. In Amazon’s case, this would mean the highly profitable AWS cloud unit.
In short, massive progress has been made, but the battle is far from over—and the outcome may end up being less than equitable. More news below, and remember that CEO Daily will be taking a break on Monday, so see you on Tuesday.
David Meyer
@superglaze
david.meyer@fortune.com
TOP NEWS
Syngenta IPO
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Facebook probe
The D.C. attorney general is investigating Facebook to see if it’s done enough to suppress vaccine misinformation. A spokeswoman for Karl Racine's office: "Facebook has said it’s taking action to address the proliferation of COVID-19 vaccine misinformation on its site. But then when pressed to show its work, Facebook refused." Fortune
J&J vs Delta
J&J has finally revealed information about the efficacy of its vaccine against the fast-moving Delta variant of the coronavirus. It's good news: the single-shot vaccine neutralizes the strain, and what's more, it provides sufficiently lengthy protection against the coronavirus in general that J&J does not think boosters will be needed within the first year. Fortune
Climate chaos
In an episode that should (but probably won't) change the minds of those who think fighting climate change is too expensive, insanely high temperatures of 121.3F led to a wildfire that almost complete obliterated a village called Lytton in British Columbia, Canada. The extreme heatwave has broken records across the north-west of the U.S. Scientists say the climate emergency isn't the only driver here, but it's certainly one of them. BBC
AROUND THE WATER COOLER
Robinhood IPO
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Teneo turmoil
The future of Teneo, the super-expensive CEO-reputation-management firm, is in doubt after the resignations of co-founders Doug Band and Declan Kelly. The latter had to quit following allegations that at a party he drunkenly and inappropriately touched women without their consent. The Financial Times, which published those allegations, has a great piece on the company and its crisis. FT
Australian restrictions
Australia will halve international arrivals as it tries to stem a surge in the Delta variant. Prime Minister Scott Morrison acknowledged that reducing caps "alone does not provide any fail safe regarding any potential breaches." He also said G7 leaders had agreed to focus on reducing the risk of serious illness through high vaccination rates, rather than virus suppression. Fortune
Pioneering passenger
The first female FAA inspector, who was denied a chance to become an astronaut in the 1960s because only men were allowed, will be a passenger alongside Jeff Bezos on Blue Origin's upcoming space voyage. Mary Wallace "Wally" Funk will, at 82, be the oldest person ever to enter space. Fortune
This edition of CEO Daily was edited by David Meyer.
