It has now been over two years since G-7 leaders announced a groundbreaking agreement to divvy up taxation of multinational corporations’ profits. That breakthrough followed years of fraught negotiations under the aegis of the OECD/G-20 Inclusive Framework, which then adopted the same agreement later that year.

By establishing a 15 percent global minimum tax rate that companies would have to pay wherever they operate, the agreement aimed both to deter profit-shifting through tax havens and to limit beggar-thy-neighbor policies for attracting foreign investment. It also introduced an additional tax on “around 100 of the world’s largest and most profitable multinationals to countries worldwide, ensuring that these (firms) pay a fair share of tax wherever they operate and generate profits.” The goal was to force technology giants like Amazon and Google to pay more taxes to countries based on where their goods or services are sold, regardless of whether they maintain a physical presence there.

But the consensus behind the agreement appears to be eroding. While the European Union and other members of the Organization for Economic Cooperation and Development have started to implement the agreed global minimum tax, the US Congress rejected this approach last year for fear of putting American companies at a competitive disadvantage. Under the Inflation Reduction Act, the United States instead opted for a 15 percent alternative minimum tax on companies that book more than $1 billion in income for three consecutive years -- a criterion that applies only to a small cohort of US multinationals.

Moreover, the other plank of the deal -- the mechanism reallocating a small share of profits from the largest multinational to signatory countries -- calls for a binding multilateral treaty. But that will be a nonstarter in the US, where the ratification of any treaty requires a two-thirds majority in the Senate. Republicans have already made clear that they will oppose any new tax on US multinationals.

Yet even without a formal multilateral agreement, more countries may unilaterally adopt other measures that are not allowed under the 2021 framework, such as the digital services tax. Colombia and Tanzania recently introduced such measures. Countries across the Global South are desperate for new sources of tax revenue, and many have concluded that their concerns were not adequately addressed in the negotiated settlement two years ago, when most of the focus seemed to be on the interests of advanced economies and their multinationals.

So great is the frustration that African countries have advanced a United Nations resolution to launch a new round of intergovernmental negotiations on international taxation later this year. At the same time, Colombia, Brazil and Chile have organized discussions on a common regional approach.

These initiatives are understandable. Under the current rules, multinationals can easily escape paying their fair share of taxes by booking their income in low-tax jurisdictions. As a result, governments are starved of tax revenues (to the tune of $240 billion per year); local firms must compete on an uneven playing field against multinationals that pay lower taxes than they do; and workers -- whose income is less mobile and easier to audit -- must pay higher taxes as countries try to offset lost revenue.

The 2021 agreement was meant to put an end to all this. But by the time negotiations had concluded, the deal had already been watered down so much that it would deliver little additional revenue for developing countries.

For example, the minimum tax was supposed to be enforced with a set of interlocking rules to determine which country has the right to tax a multinational’s under-taxed profits. In practice, however, the ordering of these rules ensured that most of the revenues would be collected either by the home countries (mostly major advanced economies), or by tax havens like Ireland, Switzerland and Singapore, which have merely raised their extraordinarily low tax rates to 15 percent.

Moving from a world with no minimum tax to one with a 15 percent floor would seem to be a step forward. But there was always good reason to worry that such a low minimum would become the new standard -- that a reform designed to raise the bar would actually end up lowering it. And since developing countries rely relatively more on corporate tax revenues, it was foreseeable that they would be the biggest losers.

The rule guiding the reallocation of taxation rights, for example, would apply only to a small number of multinationals, and to less than one-quarter of their profits, while the bulk of profits would remain subject to the current transfer-price system. But the rationale for this division remains unclear, given that the corporate profits reported in almost all jurisdictions already include deductions for the cost of capital and interest. These are pure profits that arise from the joint operations of a multinational’s global activities.

Thus, not only does the 2021 agreement misunderstand the economics of corporate profit taxation, it also reinforces global inequities by delivering little revenue to developing countries at a time when they are facing a perfect storm of energy, food and debt crises. The fact that countries are taking matters into their own hands speaks to the fragility of the current consensus and the need for more reforms.

Rich countries have a history of blocking developing countries’ efforts to play an active role in shaping the international rules of the game. It is not enough simply to give representatives from the Global South a seat at the table. What matters is that the other negotiators listen and respond meaningfully to their concerns. World leaders should take heed of developing countries’ demands and agree to a new, more inclusive round of negotiations to deliver a more equitable and sustainable global tax reform.

Joseph E. Stiglitz, Tommaso Faccio

Joseph E. Stiglitz, a Nobel laureate in economics, is a university professor at Columbia University and co-chair of the Independent Commission for the Reform of International Corporate Taxation. Tommaso Faccio is head of secretariat of the Independent Commission for the Reform of International Corporate Taxation. -- Ed.

(Project Syndicate)