ONCE upon a time there were six Ugly Sisters called Amazon, Google, Apple, Netflix, Facebook and Microsoft. Actually, there were a few more that people were less acquainted with or had forgotten about, such as Dell, IBM, Intel, Cisco and HP. These American companies dominated global technology. As a result, they made pots and pots of money through their monopoly stranglehold on the world economy.
But the Ugly Sisters grew immensely greedy. Not only did they make more profit than they could re-invest or give away to shareholders, they also hated paying taxes. So they hired accountants to manipulate their books, to ensure any profits they declared popped up in jurisdictions where compliant governments ensured local tax rates were minimal. Countries such as the UK where the corporate tax rate is a modest 19% (plus loopholes).
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Not surprisingly, this racket started to annoy many governments, not least in the United States. For these high-tech companies had also lowered costs by offshoring production to low-wages countries in Asia. As a result, American consumers were poorer while US component suppliers lost their markets to China. Discontent rumbled and Donald Trump got elected on a ticket to chastise the Ugly Sisters (whose owners funded the Democratic Party to look after their interests).
Once The Donald was put back in his box, the new Democrat President Joe Biden moved quickly to calm things down. This would involve the Ugly Sisters and their likes agreeing to pay more tax in the Old US of A. The cash would come in handy as dealing with the Covid-19 pandemic, repairing a generation of under-spending on US infrastructure, and launching a military arms race against China had forced Biden to print dollars by the trillion – a move that threatens to explode the entire world economy.
But there was a problem: other countries were also annoyed by the Ugly Sisters’ refusal to pay proper taxes. So mad were they in fact, that America’s usual cringing allies had passed their own special tax laws to make the Ugly Sisters cough up. This included Britain and France.
Even Donald Trump – the guy elected to bring the Ugly Sisters to heel – was outraged by the Brits and Frenchies getting too big for their boots. So he imposed trade sanctions to stop other countries bringing in ad hoc taxes aimed at the Ugly Sisters. Result: the Brits, being the most craven US poodle, agreed to suspend their new tax law before it was even implemented.
Enter newly-elected President Biden with a tax deal to satisfy everyone – including not being too harsh on the Ugly Sisters. After all, the name of the neoliberal game is profit. Spoiler: the deal agreed this weekend between the G7 Western economies (America, UK, France, Germany, Japan, Canada and wobbly Italy) is very, very provisional.
For starters, it still has to be signed off by China, India and Brazil – so don’t get your hopes up. Also, it has to be ratified by the US Congress where the Ugly Sisters spend billions on lobbyists. But let’s look at the deal Biden has just brokered with the G7.
First, which companies will get taxed? The small print of the deal says it will be “the largest global companies”, defined as those with profit margins of “at least 10%”. You don’t have to be too cynical to believe that next year there will be a rush of firms declaring a profit rate of 9.9%.
Chief among these will be Amazon, which pretends it is just a big shop with a retailer’s low profit margins. Also, note that the exact legal definition of which companies fall under the global tax rules will not be decided till an international accord is signed later this year. That leaves a lot of wriggle room for the Ugly Sisters.
Secondly, the G7 countries have agreed a theoretical corporate tax rate of “at least 15%”. If that sounds very low, it’s because it is. Biden initially wanted 21%.
THE lower figure was driven by the UK’s own Chancellor Rishi Sunak, who is an former hedge fund gambler committed to turning post-Brexit Britain into an international free trade zone – which means low taxes. That 15% is only a whisker away from Ireland’s miniscule 12.5%. Sunak (below) is gambling that 15% of Facebook or Google’s British profits is better than the tuppence the Treasury currently receives.
A look at the small print suggests that the Ugly Sisters will be happy with the 15% deal. For starters, it is not actually 15% charged on all declared profits.
It appears to be levied on a notional fifth of global profits which will be “allocated” to countries where the firms make their actual sales. Lost? Don’t worry, you’re meant to be. We are entering a zone where corporate tax consultants are going to be very rich. Essentially, the G7 deal comes down to allocating an arbitrary slice of the Ugly Sisters’ local sales as a basis for a local corporate tax. As this is better than nothing, I suspect most governments will be happy. The biggest gainer, of course, will be the US Treasury.
Will the Ugly Sisters end up out of pocket? As it is, these companies earn vast super-profits because of their monopoly stranglehold over technology. They are doubtless happy to trade some of that bounty to get the politicians off their backs.
There are lots of estimates flying around regarding the extra revenues the UK could expect from the G7 plan, but most seem to be in error because they assume a whole 15 % of the total value of UK sales will accrue to the UK Treasury.
However, the deal says the taxable amount is actually a sliver calculated on earnings above 10%. A more reliable source of new tax revenues would be to end the tax havens in the Channel Islands.
Is there anything for Scotland in the deal? Think of the G7 plan as a move by the big economies to squash the use of low corporate taxes by smaller nations. Which means the Irish low-tax development model is now dead.
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For a time, SNP politicians viewed Ireland as the model for Scotland. Those days are now over. Which means Scotland is in dire need of a new development model of its own.
Politicians hate giving offence so if you look at Scottish Government economic plans, or the endless, wordy strategy papers issued by Scottish Enterprise, you will discover that the plan is to invest in everything and prioritise nothing. That is economic nonsense.
An independent Scotland will have to trade to earn foreign currency, which means we will have to specialise. My guess is probably in software (with manufactured techy bits). Regardless, we will have to offer something unique and the sooner we find that something the better.
At best, Biden’s G7 tax plan is a work in progress. At worst, it does nothing to remove the economic and cultural domination of the Ugly Sisters. Only owning our own Scottish economy offers any route to escaping their greedy, insidious clutches.
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