Published: April 2024
In February, Gabriel Zucman outlined his proposal for a global minimum tax for individuals at the G20 summit in São Paulo, which was eagerly supported by Brazil and France (https://lnkd.in/eCy4HA8r https://lnkd.in/e7FCmjc3). A more detailed proposal has been commissioned. Though this development is frequently mentioned, no one seems to talk about how ground-breaking and radical the proposal is.
Zucman and others often reference OECD’s Pillar 2 (P2) GloBE rules as an example of why Zucman’s plan might work. GloBE rules were built to supplement existing rules and mirrored how corporate taxes generally worked in key concepts (eg accounting profits as tax base). Instead, it seems Zucman would Love to Change The World by Ten Years After (https://lnkd.in/e-NPaTdZ), a song whose lines includes “tax the rich, feed the poor ‘til there are no rich no more”.
The plan would tax 2% wealth as a proxy for a minimum income tax, a system (almost) no country uses. Though not technically correct, many press and supporters call it a wealth tax and Zucman himself described an earlier version of his plan as a wealth tax (https://lnkd.in/e634hedX)
Because of this mechanics, the tax base would include unrealised gains and be payable even in loss years. This creates liquidity issues, especially if valuations rise quickly without available cash. This can apply to founders shares in tech companies, pop song catalogues, meme stocks. Countries almost universally apply deferral for such unrealised gains. Zucman’s plan does not.
Finally, the proposal allows countries to collect the global minimum tax liability based on the relative weight of that country for the individual’s wealth. The EU Observatory report (p85 https://lnkd.in/ezbgfUDD) explains that 10% of a MNE’s sales in India allows India to collect 10% of the minimum tax for all shareholders in such company. If the minimum tax is not adopted globally, countries can also collect the untaxed portion as “tax collectors of last resort” through a UTPR like rule. UTPR was obviously already controversial, but taxing MNEs based on ultimate (possibly minority) shareholders goes far beyond that. It suggests that fears were correct that UTPR would pave the way for countries globally enforcing own idiosyncratic ideas about taxes (https://lnkd.in/expT2NJs).
This is a new global tax without a local precedent. GloBE rules were created after a series of domestic reform and international cooperation evolved into harmonised rules. This proposal would skip all that and jump straight to a universal rules that diverge strongly from how individuals are taxed today.
Why are ideas like this surfacing now? And does this tax have any chance of succeeding? Those are stories for another day.
Obvious disclaimers: this is not advice. These views are my own and do not necessarily represent my employer.
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