Behind the scenes of the G7 tax reform proposals, an old battle between states and corporations is taking place. But even if multinational corporations end up paying tax somewhere, where they pay it is still up for grabs. The battle then becomes one between rich and developing countries, Peter Dietsch argues.

The headlines from the G7 summit in Cornwall might suggest that the groundwork has just been laid for the most fundamental overhaul of the international tax regime in decades. The twin proposal accords additional taxing rights to states with large consumer markets and introduces a global minimum tax rate of 15%. It has been heralded as a game-changer to the way multinational corporations are taxed. Yet, such an optimistic reading of events would be premature.

To assess the merits of the plan tabled by the G7 as well as to evaluate its chances of success, it is useful to recall the double challenge faced by the international tax regime: first, under conditions where capital is mobile across borders, states have an interest in cooperating to make sure that capital and its returns are taxed somewhere; second, once the joint fiscal net is cast, every individual state has an interest in maximizing its individual share of the tax base. In other words, there are two simultaneous battles to catch mobile capital in the fiscal system: one to tax multinational corporations; and one to maximise one’s national tax base in doing so. The second of these battles has proven to be a formidable obstacle to states finding the consensus necessary to winning the first battle.