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Sensemaker: Historic tax deal

Monday 7 June 2021

What just happened


Long stories short

  • The world’s third-largest electronics manufacturer, Flex, said the global microchip shortage will last for at least another year.
  • Armed men killed at least 160 people in an attack on a village in northern Burkina Faso.
  • Archaeologists identified a shackled male skeleton uncovered by builders in Rutland as rare evidence of slavery in Roman Britain.

Historic tax deal

Finance ministers from the world’s leading advanced nations, the G7, agreed on a global minimum corporate tax rate of at least 15 per cent over the weekend. Gabriel Zucman, a University of California, Berkeley economist known for his work on tax havens, tweeted that the deal was “historic, inadequate and promising”.

  • Historic because it was the first such international agreement on corporate taxes. Countries have been engaged in a race to the bottom for decades, competing for economic activity through increasingly lower rates. Some have called the deal the first proof of revived international cooperation since Joe Biden took office.
  • Inadequate because the 15 per cent minimum is too low to stop the race to the bottom. It’s only 2.5 percentage points above the corporate tax rate in Ireland, a tax haven.
  • Promising because, as French finance minister Bruno Le Maire, who was part of the negotiations, said, the minimum rate is “a starting point”. But more so because the accord weakens the incentive for multinational firms to book their profits in tax havens and gives countries the right to tax some of the largest multinationals’ profit where it’s generated.

Underneath it all, it’s the ability of companies like Apple, Google, Facebook, and Microsoft to book their profits in low- or zero-tax jurisdictions, rather than where they make their money, that has been the driving force behind this agreement. A Microsoft subsidiary in Ireland, for example, just booked a profit of £222 billion but paid no corporation tax on it because it’s “resident” in Bermuda, a 21-square mile archipelago with a population of 70,000.

The OECD estimated that the agreement could generate an additional $50 to $80 billion a year in tax revenues. But there needs to be even more agreement for it to work. The deal will now go from the G7 ministers to the G20 ministers, who will meet in Venice next month. Then it will need to form part of wider global negotiations, currently being conducted at the OECD in Paris. “There are 139 countries at the table,” Irish finance minister Paschal Donohoe said, “and any agreement will have to meet the needs of small and large countries, developed and developing.”


New things technology, science, engineering

Lots of labs
Maximum security laboratories, like the Wuhan Institute of Virology that’s at the centre of a US intelligence investigation into whether Covid could have leaked from its lab, have proliferated in the past decade. Gregory Koblentz, an associate professor of biodefence at George Mason University, and Filippa Lentzos at King’s College London, found at least 59 such labs are planned, under construction or in operation across 23 countries, including the UK, US, China, India, Gabon, and Côte d’Ivoire. Of the 42 labs where planning data was available, half were built in the last decade. “The more work that is going on,” Lentzos told the Financial Times, “the more accidents will happen.” Another problem, Lentzos said, was that some of the labs don’t engage with their peers. “What we’ve seen so far in relation to the Wuhan Institute of Virology is a lab that’s not being open and transparent about the sorts of work it is doing.”


Belonging identity, society, beliefs, countries

Royal plan
The royals are worried that politicians are “losing Scotland”. They’re right: YouGov’s most recent survey found that 22 per cent of Scots had a favourable view of Boris Johnson, while 71 per cent had an unfavourable view. Their plan is to send the Duke and Duchess of Cambridge north to bolster the Union. William and Kate, who met as students in St Andrews, will spend more time at Balmoral, the Queen’s Scottish estate, using it as a regular home rather than holiday place. “They want them not to look like visitors but to look like residents”, a royal source told the Times.


The 100-year life health, education, living, public poliCY

Alzheimer’s drug
The US Food and Drug Administration is expected to announce whether or not it approves a potential blockbuster Alzheimer’s drug. “Without question this is the biggest binary event in biopharma in 2021,” said Colin Bristow, an analyst at UBS. The drug, aducanumab from Biogen, claims to slow the progression of Alzheimer’s disease. It’s administered intravenously to patients with moderate Alzheimer’s disease. But there have been issues with its clinical trials. An independent committee said trials didn’t show the drug was effective. Biogen came back saying it works with a higher dose. Other pharmaceutical companies, including Pfizer and Johnson & Johnson, scrapped their research and development of a similar drug. It all points to how far we are from robust medical treatment for the disease, which affects one in every 14 of the population aged 65 years and over.


Our planet environment, natural resources, geopolitics

Kim control
North Korea recently introduced a sweeping law that seeks to block out any kind of foreign influence. Under the law, the regime can harshly punish anyone caught with foreign films, clothing, hairstyles or using slang – what the country’s dictator, Kim Jong-un, called “dangerous poisons“. Those caught with media from South Korea, the US or Japan face the death penalty. Those caught simply watching foreign media face prison camp for 15 years. The regime has decreed similar laws in the past but, as millions of people are thought to be going hungry in North Korea, analysts think that Kim, who himself admitted that his people were facing “the worst-ever situation which we have to overcome” earlier this year, now wants to consolidate his control even further.


Wealth investment, fairness, prosperity

Google fine
Google agreed to pay a fine of nearly €220 million as part of a settlement with France’s competition authority. It’s one of the first antitrust cases to allege the tech company abused its dominant role in digital advertising. The regulator also alleged other forms of abuse, including making it harder for competitors to use its online advertising tools. In addition to paying the fine, Google committed to alter its business practices in digital advertising. The case stems from a complaint filed by a number of news organisations in 2019.

The week ahead

UK
07/06 – Wales further relaxes its Covid restrictions; Keir Starmer speaks at GMB trade union annual congress; Fleetwood Town manager Joey Barton appears in court charged with assault, 08/06 – Portugal moves to UK’s amber travel list; Boundary Commission for England publishes new constituency proposals, 09/06 – Joe Biden arrives in the UK ahead of G7 leaders’ summit; Police Federation of England and Wales holds annual conference, 10/06 – health secretary Matt Hancock gives evidence to select committee session on lessons learnt from Covid; NHS publishes costs of all prescriptions dispensed in England, 11/06 – UK hosts G7 summit; ONS publishes monthly UK GDP estimate, 12/06 – Cheltenham Science Festival, 13/06 – England play Croatia in Euro 2020; the Queen meets Joe Biden

World
07/06 – Nato secretary general Jens Stoltenberg visits the White House; Apple Worldwide Developers Conference; Fortune Magazine publishes Fortune 500 list of richest corporations, 08/06 – Japan and South Africa release first quarter GDP; International Olympic Committee board members meet, 09/06 – European Court of Justice rules on Ryanair’s challenge to Covid state aid given to airlines; Munich Security Report 2021 released; China consumer price index, 10/06 – annular solar eclipse visible in Russia, Canada and Greenland, 11/06 – UN General Assembly elects five non-permanent members of the Security Council; Turkey play Italy in opening game of delayed Euro 2020, 12/06 – five years since Orlando nightclub attack; E3 Expo begins

Thanks for reading, and please share this around.

Paul Caruana Galizia
@pcaruanagalizia

Xavier Greenwood
@XAMGreenwood

Photographs by Getty Images


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