By JOSEPH E. STIGLITZ*

It is crucial to address the range of specific issues needed for a global tax deal.

It appears that the international community is moving towards what many are calling a landmark agreement to set a minimum global tax rate for multinational corporations (MNCs). It's about time - but it might not be enough.

Under existing rules, companies are able to escape paying their fair share of taxes by recording their revenues in low-tax jurisdictions. In some cases, when the law does not allow them to lie that part of their income originates in some tax haven, they have transferred parts of their business to these jurisdictions.

Apple has become the poster child for tax evasion by booking profits from its European operations to Ireland and then using another loophole to avoid most of Ireland's notorious 12,5% ​​tax. But Apple wasn't alone in directing the ingenuity behind the products we love to avoid tax on the profits made from selling them to us. They rightly claimed they were paying every dollar owed; they were simply making the most of what the system offered them.

From that perspective, an agreement to establish a minimum global tax of at least 15% is a big step forward. But the devil is in the details. The current average official tax is considerably higher. Thus, it is possible, and even likely, that the global minimum becomes the maximum tax. An initiative that began as an attempt to force multinationals to contribute their due share of taxes could generate very limited additional revenue, much less than the $240 billion underpaid annually. And some estimates suggest that developing countries and emerging markets would also see a small fraction of that revenue.

Preventing this outcome depends not only on avoiding global downward convergence, but also on ensuring a broad and comprehensive definition of corporate earnings, such as one that limits the deduction of capital expenditures plus interest, plus anticipated losses, plus… would probably be better. agree on standard accounting so that new tax evasion techniques do not replace old ones.

Especially problematic in the proposals put forward by the OECD is Pillar One, which aims to address tax rights and applies only to the largest global companies. The old transfer pricing system was clearly not up to the challenges of 21st century globalization. Multinationals learned how to manipulate the system to record profits in low tax jurisdictions. That's why the United States has adopted an approach where profits are allocated among states by a formula that accounts for sales, jobs, and capital.

Developing and developed countries may be affected in different ways, depending on the formula used: an emphasis on sales will hurt developing countries that produce industrialized products, but it may help to address some of the inequalities associated with digital giants. And for Big Tech companies, the value of sales needs to reflect the value of the data they get, which is crucial to their business model. The same formula may not work across industries.

However, it is necessary to recognize the advances of the current proposals, including the removal of the “physical presence” test for tax collection – something that does not make sense in the digital age.

Some consider the Pillar One as a reinforcement of the minimum tax and, therefore, are not concerned with the absence of economic principles that guide its construction. Only a small fraction of profits above a certain threshold will be taxed – implying that the total share of profits to be levied is small indeed. But with companies allowed to deduct all production inputs, including capital, the corporate income tax is really a tax on rents or pure profits, and all those pure profits should be allocated. Thus, the demand by some developing countries that a larger share of corporate profits be subject to reallocation is more than reasonable.

There are other problematic aspects of the proposals as far as can be discovered (there was less transparency, less public discussion of the details than one would expect). One concerns dispute resolution, which clearly cannot be conducted using the types of arbitration that now prevail in investment agreements; nor should it be left to a corporation's “home” country (especially with free corporations seeking favorable tax residencies). The right answer is a global tax court, with the transparency, standards and procedures expected of a 21st century court process.

Another of the problematic features of the proposed reforms concerns the prohibition of “unilateral measures”, apparently intended to contain the spread of digital taxes. But the proposed $20 billion cap leaves many large multinationals outside the scope of Pillar One, and who knows what loopholes smart tax lawyers will find? Given the risks to a country's tax base – and with international agreements so difficult to conclude and multinationals so powerful – policymakers may need to resort to unilateral measures.

It makes no sense for countries to give up their tax rights for the limited and arbitrary Pillar One. The commitments required are incommensurable with the benefits granted.

G20 leaders would do well to agree on a minimum global tax of at least 15%. Regardless of the final percentage that sets the floor for the 139 countries currently negotiating this reform, it would be better if at least some countries introduced a higher percentage, either unilaterally or as a group. The US, for example, is planning a 21% rate.

It is crucial to address the range of specific issues needed for a global tax deal, and it is especially important to engage with developing countries and emerging markets, whose voice has not always been heard as clearly as it should.

Above all, it will be fundamental to revisit the theme in five years, not in seven, as is currently proposed. If tax revenues do not increase as promised, and if developing and emerging markets fail to capture a larger share of those revenues, the minimum tax will have to be raised and the formulas for allocating “tax entitlements” readjusted.

* Joseph E. Stiglitz is professor of economics, business administration and international business at Columbia University (New York). Author, among other books, of The price of inequality (Bertrand Brazil).

Translation: Anna Maria Dalle Luche.

*Originally published on Project syndicate.