G20 floats global minimum wealth tax idea

The Group of 20 (G20) countries is exploring plans for a global minimum wealth tax that would apply to the world’s 3,000 billionaires. The meeting of G20 finance ministers and central bank governors in São Paulo on 29 Feb 2024 first discussed a tax on billionaires that in its design could take inspiration from the 15% global minimum corporation tax.

The item was put on the agenda by Brazil’s government. The country’s Finance Minister, Fernando Haddad, said, “We need to ensure that the world’s billionaires contribute their fair share in taxes.”

He added tax avoidance by the extremely wealthy could be resolved through international cooperation so that “these few individuals make their contribution to our societies and to the planet’s sustainable development.”

Bruno Le Maire, France’s finance minister supported the proposal telling Reuters, “Currently the richest people can avoid paying the same level of tax as other people who are less rich. We want to avoid such tax optimisation.”

LeMaire said, “We want Europe to take this idea of minimum taxation of individuals forward as quickly as possible, and France will be at the forefront.”

Brazil invited economist Gabriel Zucman, director of the EU Tax Observatory, a Paris-based think-tank, to speak before the start of the G20 talks in São Paulo.

The EU Tax Observatory last year proposed a global minimum wealth tax at a rate of 2% in its ‘Global tax evasion report 2024’. The report estimated this type of tax could raise $250 billion a year from 2,756 known billionaires, who together represent a net worth of $13 trillion.

According to Zucman, the idea is to replicate the global minimum corporation tax, which put a floor to the effective tax rates of multinational companies, by doing the same for the super-rich. The talks in Brazil, he said, were the beginning of the conversation.

The EU Tax Observatory report, co-authored by Zucman, noted that a key reason billionaires tend to have low effective tax rates is that, unlike ordinary taxpayers, they are able to structure their wealth in a way that results in very little taxable income.

The owners of companies could perpetually retain earnings within their businesses or take advantage of rules to avoid double taxation of dividends. The owners of publicly listed companies for instance can, in some countries, use personal wealth-holding companies to avoid paying taxes on dividends they would have to pay if the dividends were directly distributed to a natural person.

How would a global minimum wealth tax work?

The EU Tax Observatory report details what such a global minimum wealth tax could look like.

“The approach that led to the global minimum corporate tax on multinational companies could be applied to a global minimum tax on the very rich. The underlying logic is similar. Like multinational companies, wealthy individuals have been the main winners from globalisation. Like multinational companies, they often have low effective tax rates,” it said.

A tax rate of 2% would still be very modest, the report said, as the wealth of global billionaires had grown at 7% each year on average since 1995 (net of inflation).

The report claimed that in some ways a global minimum tax on billionaires would be easier to implement than the Pillar-Two minimum tax on multinational companies, because there was not much disagreement that the residence countries, where the billionaires reside, should collect tax.  

Zucman claims that unlike income, which could be artificially reduced, wealth is easily defined as the market value of one’s assets net of all debts.  

There are, however, several issues in raising a wealth tax around the valuation of assets, liquidity and international mobility.

The main problem involves the valuation of private businesses and other wealth assets, such as art or jewellery. Another concern revolves around the need to liquidate assets to pay for the wealth tax. And the third issue is that the wealthy could simply move to a jurisdiction that does not levy the wealth tax.

The French economist says private businesses could simply be valued by applying the valuation multiples observed for similar listed businesses in the same industry. “Ultimately a global agreement would be an opportunity to develop harmonised rules for such valuations, which are already routinely conducted by private financial institutions in the context of mergers and acquisition, loans, bond issuance,” the report stated.

In a previous article Zucman had proposed, if the taxpayer does not have enough cash at hand, such taxes could also be paid in kind by transferring 2% of the taxpayer’s equity holding in a business to the government.

Ultimately, Zucman argues, if billionaires do not have the cash to pay the wealth tax, that is because they have made arrangements to that effect, and they could always borrow against their assets to satisfy any tax debt.  

To counter the threat of international mobility, he suggests either a global agreement or the reform of national taxation of non-residents. This would take the form of an “anti-exile tax” that applies to rich people who have been long-term residents, for example for at least five to 10 years.

“Nationality, in this system, is irrelevant. Moreover, any tax paid in the destination country would be credited against the amount of tax owed in the origin country, thus preventing any double taxation,” the EU Tax Observatory said.

Zucman acknowledged in Brazil that it was unrealistic to assume a global agreement could be easily achieved, but he said global consensus was not necessary. “We can advance with a coalition of agreements,” he said.

He pointed to the global minimum corporation tax as an example that has been agreed by 140 countries but only 35 countries have implemented it so far.

“It is clear that there is room for ideas like this in key countries, such as the US. France is also highly in favor of it,” Zucman added.

There is no doubt that efforts to tax the wealthy carry political weight at the national level.

In the US, the Biden administration announced plans in March for a 25% ‘billionaire minimum income tax’ in fiscal year 2025. Other proposed measures aim to close “loopholes” used by wealthy taxpayers related to carried interest, estate and gift taxes, and life insurance, although none of the proposals are likely to pass Congress.

The UK government, meanwhile, decided to reform its ‘non-domicile’ regime and connected tax advantages, affecting some 68,000 ultra-wealthy foreign residents.

And EU Tax Commissioner Paolo Gentiloni said at a meeting of EU finance ministers in March, wealth taxes were an issue that EU member states would address at the national level rather than through an international agreement.

The global minimum wealth tax is, however, likely to resurface at the G20 Summit from 12-14 July in Brazil.  

Brazil’s G20 presidency aims to draft a statement on international taxation in time for the group’s July meeting, which will reiterate a call for solutions to ensure increased tax contributions by the super-rich.

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