Global corporate taxation schemes always stall because fiscal policies are seen as ways for governments to influence their economies
Nobody wants to hear about higher taxes. It’s an unpopular and counterintuitive notion to those who believe taxation is a call of death for economies looking for growth.
But the world is different now, which is why United States Treasury Secretary Janet Yellen’s call for a minimum corporate tax to stop the so-called race to the bottom is an interesting one.
The G20 average corporate taxation went from 33 percent in 2000 to roughly 27 percent in 2020. For Organization for Economic Co-operation and Development (OECD) countries, the average went from 33 to 23 percent.
Over the last two decades, depending on who was in charge in any given country, the temptation to lower corporate taxes and increase foreign direct investments at times has been overwhelming.
What the U.S. is proposing is a 21 percent minimum federal corporate tax rate, coupled with eliminating exemptions on income from countries that don’t enact a minimum tax to discourage offshoring of jobs.
Given the slim margins, the food industry has certainly been influenced by fluctuating corporate tax rates in recent years. Restaurant Brands International is essentially a Canadian company because of a tax inversion play to create a holding company that includes Burger King, Popeyes and, of course, Tim Hortons. When Donald Trump lowered corporate taxes in the U.S. while president, the urge to go south only grew.
But now the world appears to be of the mind that it’s time to think more broadly. The European Union and Canada are willing to discuss the issue.
However, an agreement among industrialized countries might not be easy. Corporate tax rates vary widely from nine percent in Hungary and 12.5 in Ireland, to 32 percent in France and Germany, to 31.5 percent in Portugal. The combined corporate income tax rates in Canada and the U.S. are at 26 percent. Rate differentials are substantial and the revenue base for governments to be sacrificed is significant.
Conversations about subsidies are also necessary. Levelling tax rates is one thing but countries also tend to offer sweet subsidies to attract investments. Maple Leaf Foods opted to build a new plant in Indiana after being offered a generous public subsidy exceeding US$50 million.
Taxing companies that make profits even if they don’t have a physical presence in a country – like Google, Amazon, Facebook and Apple – has been a goal of OECD countries for years. Yet talks about global taxation schemes have always stalled, essentially because fiscal policies are often seen as highly guarded instruments that governments have at their disposal to influence their economies.
Complying with any international guidance on tax rates would mean letting go of some fiscal sovereignty. Moreover, the politics of changing tax regimes in some countries, including Canada, would be a huge undertaking.
Still, in the post-COVID-19 era, we should expect more global policy co-ordination. The pandemic has made many governments and, frankly, most of us realize the obvious. Health, economic and environmental risks know no borders, and methods to mitigate these risks merit a more holistic view.
Countries can pursue nationalistic agendas on a variety of issues but our collective consciousness, specific to how some decisions impact other parts of the world, now has a different frame of reference.
For the food sector, Canada has seen its share of nearshoring or onshoring in recent months. Kraft Heinz is reinvesting in Montreal, building a new plant for its ketchup brand. AB InBev announced recently it was going to brew Corona and Stella Artois beers in London, Ont. Lovingly Made Ingredients, a United Kingdom-based vegetable protein manufacturer, opened a new facility in Calgary. European giant Roquette opened the world’s largest pea protein plant in Portage la Prairie, Man., a few months ago.
After years of seeing many food manufacturing jobs disappear in Canada, this new wave of investments is certainly welcome.
A global push for more carbon pricing and a better appreciation for the inherent risks in the supply chain are likely to entice companies to rethink how and where manufacturing plants ought to be built.
This new systemic way of thinking is giving Canada a competitive advantage. Corporations already appear to be assessing risks very differently. It’s time for governments to catch up.
The generations severely affected by the pandemic will perceive risks differently than citizens who have been largely spared COVID’s wrath. Citizens who pay a lot of taxes will expect governments to set up mechanisms not only to mitigate clear and present dangers, but also future ones from abroad.
Whether it’s about setting up a minimum corporate taxation rate among OECD countries or something else, our selfish ways of governing are no longer viable given the global risks we must manage.
Yellen’s effort is a good one, even if it doesn’t amount to much of anything. Harmonized global policy thinking is needed more than ever.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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