It’s time for Europe to champion fair taxation

Amid the chaotic retreat of the United States from a rules-based international order, Donald Trump is attempting to undermine the fight for fair global taxation. While this step was to be expected, its consequences are real and demand strong, coherent positioning by the EU.

The Global Minimum Tax rate, which came into effect last year,  was a major step forward in the fight against corporate tax avoidance. It has been estimated that such a tax could yield upwards of €200 billion per year. The agreement introduces a top-up tax on multinationals operating in jurisdictions where the effective tax rate is below 15% and took years of delicate financial negotiations to achieve. All of this was shattered, however, by a simple memorandum signed by the US President on the day of his inauguration.

The text of the agreement stipulates that states will recover the difference between the tax paid abroad by their major national companies and the tax they would have paid on their soil, the latter having to be at least 15%. Implemented not only by the EU but by Canada, the UK and Japan, the agreement's signatories carry considerable weight, sufficient to influence global tax frameworks.

While the withdrawal of the United States from the agreement is highly damaging, it does not have to be a death sentence for tax justice. At a time when public finances are stressed, and transitioning to a sustainable model of economics in the face of climate breakdown demands comprehensive public investment, this agreement is not only an important tool for fair taxation. It is also essential for the credibility of our governments to demonstrate that they will not allow unsustainable corporate interests to stand in the way of a liveable future.

The Global Minimum Tax rate is an essential supplement to the 22% EU minimum tax rate that Volt is advocating for. Given that there are provisions for surtaxes on multinationals from territories that do not apply the minimum tax, the absence of the United States can be compensated for if the remaining signatory countries stand together behind this mechanism.

While the United States is already threatening retaliation against countries that dare to tax their companies more heavily, Volt calls on the European Union to take the political lead on this agreement to ensure that it is enforced. 

Moreover, the EU, losing billions upon billions in revenue to tax avoidance practices every year, has a responsibility to safeguard and support further international work on fair taxation, for example within the negotiations on the UN framework convention on international tax cooperation that kicked off in November. More than ever, the EU must stand up for multilateralism and global economic frameworks that can enable us to cope with our multiplicity of crises and, for the interest of its own citizens, restrict the damage the Trump administration is causing to the international order.