Finally, a bit of good news on the taxation front. Over 131 OECD countries have agreed to the G7 proposals to introduce a minimum global tax for multinationals to be based upon where their sales and profits occur and not where they decide to locate their headquarters or seat of governance. The G20 finance ministers meeting in Venice in July set out the remaining details ahead of the October meeting of the G20 heads of government.

What does this mean? Having led the US Chamber of Commerce to the EU, known as AMCHAM EU, for five years, and worked for over 12 years for two of the larger multinationals known for their very inventive and creative tax setups over the years, I have some experience from the insides of corporations. I must admit that, as a lawyer heading their government relations activities in the EU, this question was often discussed.

My argument to the leaders of companies was that there will be a time when  the world will be clamouring for the rise of ethical companies and such an ethical company would be defined as a company that would pay its share of the tax due wherever it carries out its business.

I asked these companies to prepare for the day when the roles of tax havens  would be questioned and where the schemes whereby internal debts, intra-corporate sales of patent rights to reduce the profits in high taxation countries in favour of sister companies in low or zero tax countries would come to an end.

Well, here we are. Governments will enact this global change in taxation principle, but the level of taxation has been kept to the lower end of predictions. Both governments and international companies should be satisfied.

Companies have sales revenues in most countries, but their real costs are usually located in fewer countries where they have their production, logistics or administration and management costs. Just as the revenues can be calculated by country then too the total costs of the company can be distributed in the same proportion across the several countries.

The old system was complicated in favour of the wealthy and the owners and shareholders of corporations.- John Vassallo

For example, Alphabet (formerly Google) had earnings before tax of $41 billion in 2020. Over the past 10 years their accumulated profits before taxes were circa $300 billion. Instead of paying $45 billion in taxes it paid next to zero by moving most of the profits to low or zero tax countries.

Similar arrangements have been used by most multinational companies.

Tax havens will begin to wither away. What will this mean for Ireland and Malta? Well both countries will collect 15 per cent of all profits generated from revenues there. All sales of internet clicks, advertising, software licences, Amazon packets, cars, gambling and gaming bets and fees, household appliances, cement, food and raw materials imported from abroad will form the basis for Malta tax collectors.

This will probably produce more tax revenue for Malta than the present financial services do since these latter are only set up to help companies avoid and not pay tax. Of course, jobs in these services will be fewer but there will still be room for financial services in the future. The same would apply to Ireland.

But this is only the first step. Many finance ministers are suggesting that the system can lead to higher rates than the 15 per cent over time and to an extension of the system to a wider set of smaller international companies like the gambling industry and the transport industry as well as tourism and food and beverages.

The consumer countries which buy the goods and services and provide the profits will also get the full revenue of taxation in this way. The only way for corporations to avoid tax will be to reduce their prices so that they make no profits. But if they do that the stock exchange will penalise them and their shares would soon be worthless. It will no longer be possible to create costs in some high tax countries to reduce profits there and to increase revenues and profits in low or zero tax countries since it is the final total profit before tax of these companies and the sales revenues by country that will be the measurement.

Fairness across the globe may begin to prevail. How soon the net of 15 per cent rises to 20 per cent and the net of revenue-based taxation will widen to all companies whatever their business and later to individuals is just a question of time. Soon all countries will tax their citizens on their global wealth on the principle of where their wealth is created not where the individual has citizenship or where they decide to reside.

It will be complicated but today’s system with all the financial services industry that has mushroomed around avoiding taxation is equally complicated. The new system will be complicated in favour of the tax authorities and finally the citizens who benefit from the spending of tax revenues on infrastructure, education and health services. The old system was complicated in favour of the wealthy and the owners and shareholders of corporations.

John Vassallo is a former ambassador to the EU.