Charting a Path to Global Tax Justice in the Twenty-First Century

The G20, under Brazilian presidency this year, has made global tax justice one of its core objectives. The emphasis in Brasilia has been on finding an international coordination mechanism able to ensure the taxation of the world’s superrich. But global tax justice also encompasses the fair taxation of multinationals and a more just distribution of tax revenue between countries in the Global North and the Global South. In times of changing global orders and accelerating digitalisation, can common rules on international taxation bring countries together? The architects of the recent OECD deal brokered in 2021, and which saw more than hundred thirty countries and territories agreeing to a common minimum fifteen percent corporate tax on large multinational companies, at least claimed to do so.

We brought these debates to Zürich, home to the Swiss bank UBS and the now-defunct Crédit Suisse, as well as one of the birthplaces of the offshore financial industry. Not one, but two events were necessary to take on this topic from a variety of disciplinary perspectives. In February, Alice Pirlot, an international law scholar at the Graduate Institute, and myself invited the public finance economist Gabriel Zucman, laureate of the prestigious John Bates Clark medal, a world leading expert on international taxation and co-author of the G20’s proposal, for a panel at the Collegium Helveticum – where I held a fellowship during the 2023-2024 academic year.

During this first event, Zucman presented the latest Global Tax Evasion Report issued by the EU Tax Observatory and most importantly his ambitious proposal to tax the wealth of the world’s billionaires. The irony of engaging in such a conversation in Switzerland, one of the four countries which make up what the Tax Justice Network calls the ‘axis of tax avoidance,’ was not lost on anyone, not least Zucman himself. Later in May, Pirlot and I hosted a larger interdisciplinary conference bringing together the perspectives of scholars from a variety of fields, from history, philosophy, anthropology, law to civil society organisations, to discuss the past and future challenges of global tax justice.

‘The Global Tax Truce’

The OECD-led ‘global tax truce’ is now under serious threat because of extreme political polarisation in the US Congress. This agreement, officially titled ‘A Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy,’ aims to achieve two objectives: first, to coordinate the taxation of multinationals across the world economy and prevent unilateral actions, especially Digital Services Taxes (DSTs) (Pillar 1), and second, to ensure that the world’s largest multinational companies pay a minimum fifteen percent corporate tax worldwide (Pillar 2). One of its main architects, Pascal Saint-Amans, the former director of the OECD’s Centre for Tax Policy and Administration and now employed by a private sector lobbying firm called Brunswick Group, claims that the OECD managed to ‘change the course of history.’

But the deal, especially Pillar 1, will likely not survive the obstruction of Republicans in the Senate, where a supermajority is required for the agreement to be ratified. Furthermore, the June 30, 2024 deadline for the OECD signatories to reach an agreement on amount A of Pillar 1 (or in plain English, the share of the consolidated profit of certain MNEs that will be reallocated to the jurisdictions where companies do their business) has quietly elapsed. Countries in the Global South, mostly notably the African Group, have also questioned the ‘inclusive’ nature of the agreement and argue that the United Nations, with its more inclusive composition and Global South-majority in the UN General Assembly, would be a better platform for international tax negotiations.

Who gets to govern and set the rules of global taxation when the tax base can move from one country to another? Should the OECD, a club of rich countries, be the only platform? Or should the decision-making process be much more inclusive, and involve countries which have historically been side-lined or that have been holding the short end of the stick? What are the other obstacles to greater global tax justice? And how should the latter be understood?

The OECD loves to hide ‘behind what they consider the panacea of “capacity building”,’ a way of telling low-income countries that they should focus on getting their own house in order first, but African countries in particular will have none of this paternalism.  

Theorising Global Tax Justice

Is this – a more democratic international decision-making platform – what we mean when we talk about global tax justice? Pierre André, a political philosopher at the University of Louvain who spoke at our May conference in Zürich, explored this question in detail. Does global tax justice entail the equalisation of tax burdens between various states? Equalisation of tax revenues? The global distribution of global tax burdens and benefits to lift everyone above a certain threshold? Or should ‘global tax burdens and benefits’ be distributed more equally to reduce global inequalities between individuals? Until now, the main goal has seemed to be equalising tax revenues across states and ensuring that all countries receive their fair share of the global tax pie. This share could be significantly larger, however, if only multinationals were not allowed to use the law to reduce their tax obligations, such as by using accounting tricks to slash their tax bill in the countries where they make money, better known as the so-called arm’s length principle.

The current global tax regime is a product of the upheavals of the twentieth century and especially of the efforts to shield capital from these upheavals. Imperialism, costly wars, the advance of progressive taxation, and bitter decolonisation struggles all contributed in crucial ways to the creation of the offshore world and its uneven fabric of tax havens and other special economic zones. This helped spin the uneven threads of today’s world economy and in doing so eviscerated corporate and individual tax collection throughout the world.

The international tax order is above all an international legal order, built and shaped by individual tax lawyers, private industry lobbies, and interest groups such as the International Chamber of Commerce. The annual prize awarded to tax scholars under the age of forty by the International Fiscal Association, one the profession’s foremost professional body, is named after Mitchell Carroll, a man unknown to the wider public but arguably one of the most influential early makers of the international tax order.

Carroll lived between 1898 and 1987 and was implicated in virtually every multilateral committee involved in taxation matters, be it at the League of Nations, the United Nations or the European Economic Cooperation (OEEC) which became the Organization for Economic Cooperation and Development (OECD) in 1961. Matthieu Leimgruber, a professor at the University of Zürich and participant at our conference who is now working on a biography of Carroll, explained how this ‘corporate henchman,’ as he put it, managed to discreetly neutralise the ‘political salience’ of debates about tax evasion and capital flight in international arenas, with critical implications for the structure and complexity of international tax rules. To this day, bilateral treaties continue to constrain states’ ability to tax cross-border economic activity, and the arm’s length principle, very much Carroll’s inheritance, has allowed for the shifting of profits away from where they should be taxed.

The French Tax Haven That Wasn’t

What can be done about today’s unequal and unjust global tax order? Historians can play an important role in uncovering solutions, especially given their understanding of the nature and roots of power imbalances in the world economy, their ability to see through the semantic obfuscation erected by tax lawyers over decades, and more generally their ability to uncover paths not taken.  For me, the point really is to denaturalise the global tax landscape as we currently know it.

Let’s start with tax havens, one of the single most important impediments to global tax justice. In an article forthcoming in Past & Present, I engage with the debate about the colonial origins of tax havens, the historical problem of double taxation, and conflicts over tax in the global economy. I argue that the French colonial empire had the potential to transform into a series of tax havens but ultimately did not. It became the ‘tax haven that wasn’t.’ Why? Unlike the British empire, the French sat at the helm of a much less expansive and powerful imperial economy and the metropolitan Ministry of Finance stood firm against the tendency of colonial business interests to take advantage of tax differentials across metropole and colonies.

When French colonial firms began to move their headquarters to colonies to lower their liability to the capital income tax (impôt sur le revenu des valeurs mobilières) in the mid-1920s, the Ministry was quick to spot these transfers and viewed them extremely suspiciously. Rates had gone up spectacularly as a result of spending during the war and ensuing inflation, providing a clear incentive to scout for the lowest rates elsewhere. I call this the French empire’s ‘tax haven temptation.’ The Ministry of Finance retaliated and brought some of these companies to court.  It essentially argued that that these transfers amounted to tax evasion and companies such as La Compagnie du Cambodge or Les Caoutchoucs de Padang were sentenced to pay heavy fines for setting up sham tax domiciles in the colonies. Most companies lost their case. Eventually, French metropolitan authorities always preferred to keep the upper hand in tax matters, and refused to grant tax incentives over which they had no back stop control. This history is crucial because it shows that tax havens are not inevitable. They can be made to fail.

Given the changes underway, the global tax order has never been riper for a historical reckoning. First, stakeholders such as international tax negotiators, tax lawyers, economists and other tax pundits need to be much more aware of the elitist, imperial, and racist history of global tax governance in the twentieth century. Second, there needs to be a serious broadening of the imagination and a willingness to rethink the way the current global tax order works. That way, we might be able to rethink where decisions are taken, who gets to participate, and how the profits generated by globalisation are shared.

At the May conference, we discussed several proposals, including Zucman’s bold proposal for a blueprint for a coordinated minimum effective taxation standard for ultra-high-net-worth individuals, which takes international coordination issues seriously and contains credible solutions against the proverbial threats of rich people’s flight. This is an important solution to the scandal of tax regressivity at the very of the global wealth distribution, or in other words the fact that the world’s 3000 USD billionaires benefit from lower effective income tax rates than the rest of us.

As for between-country global tax justice, there is of course an ongoing discussion about a future UN Framework Convention on International Tax Cooperation. Not everyone thinks that the UN is a magic bullet, however. Another alternative to the OECD-led system would be a regionalist arrangement, a possibility advocated by Afton Titus, a professor of law at the University of Cape Town, who argues that the African Union could play a much more decisive role in federating the efforts of technical bodies such as ATAF (African Tax Administration Forum) and other organisations such as UNECA (United Nations Economic Commission for Africa), the African Development Bank, and civil society organisations.

At a moment when the Republican candidate Donald Trump threatens to get rid of income tax altogether and replace it with tariffs, far more informed debates about taxation and international coordination have never been so urgent.