A fairer distribution of the tax burden benefits all

Op-ed by Katja Gentinetta, published at NZZ magazin

Taxation will likely make an important contribution to correcting negative effects of what is basically positive globalization.

The weakness of the World Trade Organization (WTO) is deplorable. One explanation for this could be that there is growing discussion around tax matters. While the first official declaration (at that time by the G7) declaring tax avoidance to be a priority concern dates back to 1996, but the recent signing of OECD’s rules for global taxation of multinational companies by 140 countries is a huge step in this direction.
Encouraged by this milestone, the OECD steering group can come up with follow-up projects that do not require convincing others on matters of urgency and pertinence These are challenges that a single state would not tackle for a justifiable fear of competitive disadvantages. These require transnational coordination if the community of states does not want to end up in a confusing web of individuated national solutions and bilateral agreements.

Energy must remain affordable
First and foremost are efforts toward a „greener“ tax system. Environmentally friendly behavior and corresponding innovations are to be rewarded, while environmentally harmful practices are to be penalized. National circumstances must be taken into account and the transition to a zero-emission economy, which will affect different countries, industries and population groups differently, must be designed in such a way as to avoid distortions.

Energy must remain affordable, and CO2 pricing and emissions trading must be standardized and coordinated across borders to avoid negative effects on global trade. Climate-friendly taxation should also provide insights into how further adjustments can be made to achieve the United Nations‘ Sustainable Development Goals.

The second issue mentioned by the OECD group is the recalibration of value-added tax. The corresponding revenues, which amount to an average of one-third of total state tax revenues, have fallen sharply as a result of growing online trade. This has only aggravated since the pandemic. Locally stationed retailers are coming under pressure. Initial guidelines to address the problem are already being implemented in around seventy countries – with consistently positive experiences, including for local retail stores. Hence, efforts in this direction need to be stepped up.

Next, the tax group works towards the already known need for cross-border cooperation in the taxation of large private assets. The automatic exchange of information, which was developed as a result of the financial crisis and definitely brought down Swiss banking secrecy, was a big step in this direction.

Gigantic hunt for tax money
In the next phase, the aim is to improve the taxation of these assets in developing and emerging countries, to increase the tax scale, and to tax assets, real estate ownership, capital income and inheritances in a more targeted manner. As a flanking measure, countries with weak or even non-existent tax administrations are to be supported in setting one up. A group is working on digital support for these projects.

All this sounds like a gigantic hunt for tax money, and to some extent it is. Conversely, no one can deny that the relentlessness with which manageable incomes are taxed is repugnant to the possibility of elaborate tax avoidance constructs. Tying back those practices, which are very often legal, and spreading the tax burden more fairly benefits everyone – especially the middle class, which tends to be politically more silent because it is industrious and looks after itself.

The will seems to be there
For such projects to be successful, there is a need for political will and an organization that systematically and decisively takes on such projects. Both seem to be present at the moment. It is true that Finance Minister Ueli Maurer was put off with his proposal to include CO2 taxation in corporate taxation. But he is part of an initiative with 61 colleagues from other countries that is pushing the issue. And U.S. President Joe Biden, who has made global corporate taxation a priority, could use this opportunity to tackle the USA’s own tax havens with the same determination.

So the prospects are good that global taxation will make an important contribution to correcting the negative effects of a largely positive globalization.