Global tax deal in jeopardy

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2024 was meant to be the year that the race to the bottom in corporate taxation ended, but the implementation of a much-heralded global deal on how multinationals are taxed appears to be under threat.

The two-part agreement, originally brokered by the OECD in 2021 with buy-in from more than 135 countries, was the biggest corporate tax reform in more than a century.  

The second stage of the reforms, which bring in a global minimum 15 per cent corporate tax rate, began to take effect at the start of the year. The EU, the UK, South Korea, Japan, Canada and Norway have all begun applying the new rate, affecting the profits of multinationals with annual revenues higher than €750mn.

The FT editorial board applauded the move as a big step forward. It was however highly regrettable that the US and China, the world’s two largest economies, had not yet introduced legislation to implement the deal they both backed, the FT said. 

The Lex column said the cleverly designed rule would restrict the scope to profit from arbitrage and be felt most acutely by companies that use tax havens, “euphemistically known as investment hubs”. 

The OECD originally estimated the initiative would increase global corporate tax revenues by up to $220bn a year but now expects the measures to bring in $155-192bn a year. Some however are sceptical of the OECD’s calculations.

However, as we report today, it is the first leg of the deal, which would make companies pay more tax in the place they do business, that is causing most concern. Its implementation is facing resistance from US Republicans and could be killed off completely should Donald Trump, a staunch opponent of the agreement, become president in November.

These factors, plus difficulties finalising the treaty text, are jeopardising efforts to meet a June deadline for its signing. All eyes are now on the meeting of G20 finance ministers in São Paulo, Brazil, this week, where the treaty’s fate could be decided.

Need to know: UK and Europe economy

The UK’s tax burden will hit a record high as a share of national income, no matter what chancellor Jeremy Hunt announces in next week’s Budget, according to new analysis from the Institute for Fiscal Studies.

The funding crisis in England’s local authorities is “forcing them to the pawnshop” in a fire sale of assets. The councils have been hit hard by the government’s austerity programme, which began in 2010 with the aim of reducing the national deficit through spending cuts.

A top executive at Vauxhall owner Stellantis said the UK government needed to do more to encourage drivers to switch to electric vehicles before it commits to converting a factory to battery-powered models.

Business regulation was meant to be nimbler after the UK was freed from the shackles of EU red tape, so what went wrong? A Big Read investigates. The FT editorial board separately bemoans the state of Britain’s gummed up planning system.

Need to know: Global economy

Departing US climate envoy John Kerry accused asset managers of “turning away from science” after several of the world’s biggest investors retreated from an industry group formed to tackle climate change. The British Labour party said it was “laser-focused” on net zero despite dropping its £28bn a year green investment pledge.

US economic growth for the fourth quarter was revised down slightly from 3.3 per cent to 3.2 per cent but did not shake the overall picture of resilience at a time of high interest rates. However, no matter how well the economy seems to be performing, the US remains a country torn over identity disputes, writes columnist Edward Luce.

Mexican billionaire Carlos Slim has built up an unlikely alliance with the country’s leftist president Andrés Manuel López Obrador. The two men share an interest in Mexican “national champion” companies, a mistrust of regulators and an enthusiasm for building mega-projects.

Need to know: Business

Amazon is stepping up investments in start-ups that combine AI with robotics as it attempts to automate its retail network.

Shenzhen, the third most populous city across the border from Hong Kong, plans to become “China’s Detroit” by expanding its auto city, boosting export capacity and accelerating construction of a BYD factory. China last year overtook Japan as the world’s largest car exporter, sending 5mn vehicles overseas

Profits for the biggest US oil and gas producers have almost tripled under President Joe Biden, even as the industry hits out at his “hostile” policies. US production has smashed records in recent years and last year the country overtook Qatar to become the world’s largest exporter of liquefied natural gas.

Saudi football clubs are returning to the transfer market for more big signings in the summer after sending shockwaves through the game worldwide last year when they spent more than €800mn on new players, including stars such as Brazilian forward Neymar.

How do you make the world’s most advanced microchips? Manufacturers coming up against the limits of physics are rethinking semiconductor architecture to make them even more powerful. Our visual storytelling team explains.

Nippon Steel’s planned purchase of US Steel is being seen as a test case for how Japan’s managers, unaccustomed to dealing with trade unions, cope with increasingly fiery American workers.

The World of Work

A government survey revealed the extent of the gender pay gap in Australia for the first time. Morgan Stanley, UBS and Bank of America have some of the largest, more than twice as high as the average of 19 per cent. The biggest gaps by sector are construction, banking and consulting.

There was better news for supermarket workers in the UK, where high street bellwether Marks and Spencer joined other grocers in raising hourly pay above the national living wage. All the major chains have been increasing pay amid a tight labour market and a cost of living squeeze over the past 18 months.

The phrase “office politics” might make you shudder — but is playing the game just an unfortunate fact of working life? Listen to the new Working It podcast.

Some good news

Researchers have long acknowledged the lack of diversity in the genomes available for them to study but a huge new US programme called “All of Us” is filling the gap with findings from historically under-represented groups such as African-Americans and Hispanics.

Source: Economy - ft.com