In under twenty years, the world buried banking secrecy, set up automatic data exchange on more than 100 million accounts, and established the principle of a global minimum tax on multinationals. This revolution, born of the 2008 crisis and a string of spectacular leaks, goes by a misleading name. There is no international tax “harmonization,” only coordination extracted under pressure, unfinished, and now being challenged by the very power that made it possible.
1923: Four Economists and a Hundred-Year Compromise
The international tax system grew out of the opposite problem from the one that preoccupies us today. In the aftermath of World War I, income taxes, still new and swollen by the war effort, threatened to hit the same profit twice: once where it was earned, and once where the person receiving it lived. The League of Nations handed the question to four economists, Bruins of the Netherlands, Einaudi of Italy, Seligman of the United States, and Stamp of Britain, who delivered their report in 1923. Model treaties followed in 1928.
The compromise that emerged still governs the world. The source country taxes business profits earned on its soil through a “permanent establishment,” meaning a physical presence. The residence country taxes most passive income: interest, dividends, and royalties. Transactions between affiliates of the same group must be priced at “arm’s length,” the price unrelated companies would have charged each other. The OECD picked up the torch with its 1963 model treaty, the United Nations published a model more favorable to source countries in 1980, and more than 3,000 bilateral treaties now make up the web.
The system rested on two assumptions: that doing business requires a physical presence, and that governments know what their residents own abroad. Globalization destroyed the first. Banking secrecy had undermined the second from the start.
The Invention of Secrecy
Legend has it that Switzerland created banking secrecy to protect the assets of persecuted Jews. Historians have debunked it. Article 47 of the Federal Banking Act of November 8, 1934, which made breaching bank secrecy a crime, owes a great deal to a French scandal. In the fall of 1932, police raided the Paris offices of the Basler Handelsbank and seized a list of some 2,000 clients, among them members of parliament, industrialists, and bishops. The affair, aired on the floor of the Chamber of Deputies, triggered massive withdrawals in Switzerland. Bern responded by giving its bankers’ discretion the armor of criminal law.
The postwar years broadened the menu. The Eurodollar market took shape in London in the 1950s, and in its wake the Crown Dependencies and former British outposts, Jersey, the Cayman Islands, the Bahamas, later Singapore and Hong Kong, found their specialties. Luxembourg built its holding company industry, Liechtenstein its foundations, Delaware its anonymous shell companies. The liberalization of capital flows in the 1980s knocked down the last barrier, exchange controls. Money could now leave legally. All it needed was to arrive quietly.
The Great Race to the Bottom
Mobile capital also drew governments into a rate war. The average corporate income tax rate worldwide, above 40% in 1980, had fallen to around 23% forty years later. And the headline rate is only the surface. An economy built on intangibles lets companies park patents, trademarks, and algorithms in subsidiaries located wherever they please, then pay those subsidiaries royalties that hollow out profits in the countries where customers actually are. The arm’s-length principle, designed for shiploads of wheat, is helpless against a one-of-a-kind asset that by definition has no comparable market price.
The signature structure, the “Double Irish” with its “Dutch Sandwich,” let U.S. tech companies route their European profits to Bermuda while paying tax in the low single digits. Research by Thomas Tørsløv, Ludvig Wier, and Gabriel Zucman estimates that close to 40% of multinationals’ foreign profits are shifted to tax havens every year.
The First Offensives, and Their Failure
The OECD opened hostilities in 1998 with its report on harmful tax competition, followed in 2000 by a list of 35 tax havens. The European Union adopted a code of conduct on business taxation in 1997, then in 2003 a Savings Directive that created the first automatic exchange of information, promptly circumvented because it covered neither shell companies nor any income other than interest.
The momentum broke in 2001, when George W. Bush’s Treasury secretary, Paul O’Neill, pulled U.S. support for the OECD project in the name of tax sovereignty. The blacklist emptied out as jurisdictions signed commitments that cost them nothing. For seven years, next to nothing happened.
2008: The Tipping Point
Three events collided. In February 2008, German police raided the home of Deutsche Post chief Klaus Zumwinkel in front of television cameras: the country’s intelligence service had paid a few million euros for a file stolen from LGT, the Liechtenstein bank. A rule-of-law state was buying stolen data, and the public cheered. Around the same time, IT specialist Hervé Falciani walked out of HSBC’s Geneva private bank with data on tens of thousands of clients, which ended up in the hands of French tax authorities. And in the United States, banker Bradley Birkenfeld exposed the methods of UBS, which in 2009 was forced to pay $780 million and hand over names.
Then came the financial crisis. Governments that had just bailed out their banks with no hope of getting the money back had no patience left for banks that helped their revenue escape. On April 2, 2009, the G20 leaders in London declared the era of banking secrecy over.
What came next comes down to two acronyms. FATCA, in 2010: the United States requires banks worldwide to report their American clients or face a 30% withholding tax. CRS, in 2014: the OECD extends the mechanism to more than 100 jurisdictions. Luxembourg gave in during 2013, Austria right behind it. The U.S. Justice Department finished off the Swiss model: Wegelin, the country’s oldest bank, closed in 2013; Credit Suisse pleaded guilty in 2014 and paid $2.6 billion; some 80 other institutions settled. Switzerland made its first automatic exchanges in 2018. One detail rarely noted: banking secrecy survives intact for Swiss residents with respect to their own tax authorities. It died only for foreigners.
The Age of Leaks
The political pressure would not have held without a new kind of fuel: the mass data leak, worked through by consortiums of reporters. The International Consortium of Investigative Journalists published Offshore Leaks in 2013, then LuxLeaks in November 2014, revealing hundreds of tax rulings Luxembourg had granted to multinationals, just days after its longtime prime minister, Jean-Claude Juncker, took over as president of the European Commission. SwissLeaks followed in 2015, the Panama Papers in April 2016, which brought down Iceland’s prime minister within 48 hours, the Paradise Papers in 2017, and the Pandora Papers in 2021.
Each wave produced its own piece of law. Panama joined the CRS a few weeks after the revelations that bear its name. LuxLeaks gave rise to the automatic exchange of tax rulings among EU countries. The legislative calendar of tax transparency reads, to a large degree, like a calendar of scandals.
BEPS: Going After the Multinationals
The second front opened in the fall of 2012. In London, the House of Commons Public Accounts Committee, chaired by Margaret Hodge, hauled in executives from Starbucks, Google, and Amazon, who explained on camera why billions in U.K. sales produced almost no taxable profit. The G20 gave the OECD a mandate. The BEPS action plan, for “base erosion and profit shifting,” was unveiled in July 2013, and its 15 actions were finalized in October 2015.
Four of them became minimum standards, subject to peer review. The crackdown on harmful preferential regimes led to the review of more than 300 of them, most of which were abolished or amended. An anti-abuse clause for tax treaties shut down “treaty shopping.” Country-by-country reporting requires groups with more than €750 million in revenue to give tax authorities a global breakdown of their profits, taxes, and headcount. And dispute resolution between governments was improved.
Two institutional innovations came with the substance. The Inclusive Framework, created in 2016, opened the negotiating table beyond the OECD’s membership. It now has more than 140 members, though countries of the Global South question how much influence they really have. And the Multilateral Instrument, signed in Paris in June 2017, made it possible to amend more than 1,000 bilateral treaties in a single stroke, avoiding decades of renegotiation.
The European Union went beyond the standard: an Anti-Tax Avoidance Directive in 2016, mandatory disclosure of cross-border arrangements by advisers, public country-by-country reporting, and, starting in December 2017, a blacklist criticized for never including a member state. Above all, Margrethe Vestager’s competition directorate turned EU state aid law against tax rulings. In August 2016, the Commission ordered Ireland to recover €13 billion from Apple. Annulled by the EU’s General Court in 2020, the decision was definitively upheld by the Court of Justice on September 10, 2024. Ireland, which had fought not to collect the money, had in the meantime shut down the Double Irish. The resulting onshoring of intangible assets made its GDP jump 26% in 2015, a statistical artifact that Paul Krugman dubbed “leprechaun economics.”
Who Owns What: The Battle Over Beneficial Ownership
Exchanging account data is pointless if the account holder is a shell whose owner nobody knows. Prodded by the Financial Action Task Force, beneficial ownership registries multiplied. The United Kingdom opened its registry to the public in 2016, and the EU mandated them through its anti-money-laundering directives of 2015 and 2018.
The movement has since suffered a double setback. On November 22, 2022, the EU’s Court of Justice struck down general public access to these registries as a disproportionate intrusion on privacy rights. Only those who can show a legitimate interest, journalists and NGOs included, may now consult them. In the United States, the Corporate Transparency Act, passed at the end of 2020 and in effect from early 2024, was supposed to end the anonymity of Delaware companies. In March 2025, Treasury exempted U.S. companies and their American owners, leaving little of it standing.
The Floor: 15%
BEPS had plugged holes without tackling two fundamental questions: where to tax a digital economy with no physical presence, and how to stop the race on rates. With no agreement in sight, countries acted alone. France adopted a 3% digital services tax in 2019, Washington threatened tariffs on champagne and handbags, and a dozen countries followed Paris.
The breakthrough came from the United States. The 2017 Tax Cuts and Jobs Act had created, through its GILTI provision, the beginnings of a minimum tax on the foreign profits of U.S. companies. In April 2021, Treasury Secretary Janet Yellen proposed taking the idea global. The G7 reached a deal in London in June, and on October 8, 2021, 136 jurisdictions signed on to a two-pillar statement.
Pillar One was meant to reallocate to market countries a quarter of profits above a 10% margin, for the hundred or so groups with revenue over €20 billion. A draft multilateral convention was published in October 2023. It would have required ratification by a two-thirds vote in the U.S. Senate. It was never opened for signature and can be considered dead.
Pillar Two survived. It imposes a minimum effective rate of 15%, calculated country by country, on groups with more than €750 million in revenue. Its mechanics are the cleverest thing about it. If a subsidiary is taxed at 9% somewhere, the parent company’s country collects the missing six points: that’s the Income Inclusion Rule. If the parent’s country doesn’t, the other countries where the group operates split the top-up among themselves: that’s the Undertaxed Profits Rule, the real backstop. And the low-tax country can preempt all of it by enacting its own qualified domestic minimum top-up tax. The incentive is ruthless: the tax will be paid either way, so you might as well collect it yourself. The system therefore doesn’t need unanimity to work, only critical mass.
The EU adopted it through a December 2022 directive, after overcoming successive vetoes from Poland and Hungary, with rules taking effect in 2024. Some 50 jurisdictions followed, including some unlikely ones. Ireland gave up its 12.5% rate for large groups, Swiss voters approved the reform in a June 2023 referendum, and Bermuda introduced a 15% corporate income tax in 2025. In early 2024, the OECD put the global revenue gain at between $155 billion and $192 billion a year.
The criticism comes in two forms. The rate is low, and a substance-based carve-out, tied to payroll and tangible assets, shields part of the profits of groups with real operations on the ground. More important, the rules treat certain refundable tax credits favorably, so competition on rates may simply turn into competition on subsidies. The EU Tax Observatory argues these loopholes have eaten away most of the expected yield.
The American Retreat
Congress never enacted Pillar Two. On January 20, 2025, the day of his inauguration, Donald Trump signed a memorandum declaring the 2021 deal to have no force or effect in the United States and ordering an inventory of possible retaliation against countries applying “extraterritorial” taxes to American companies. That spring, the Republican budget bill included a Section 899, quickly nicknamed the “revenge tax,” that would have raised taxes on investors from the countries in question.
The G7 blinked on June 28, 2025: U.S.-parented groups would be exempt from Pillar Two’s two main rules, on the theory that the American regime is an equivalent system operating “side by side” with the global standard. Section 899 was stripped from the bill signed into law on July 4. The day after the G7 statement, Canada rescinded its digital services tax, Washington having broken off trade talks over it. The Inclusive Framework formalized the arrangement in a package released in early 2026.
The episode says it all. The leverage that made FATCA possible, access to the U.S. market, is now being used to pull American champions out from under the common rule. European and Asian groups remain subject to a regime from which their main competitors are excused, and several capitals are asking how long a global standard can last without the world’s largest economy.
The Global South Changes Tables
Meanwhile, the very legitimacy of the OECD, a club of rich countries writing rules for everyone, has come under attack. At the initiative of the Africa Group, the UN General Assembly voted in December 2023 to open negotiations on a framework convention on international tax cooperation, over the objections of nearly every OECD country. The terms of reference were adopted in August 2024, and the negotiations, which began in 2025, are scheduled to wrap up in 2027. The United States walked out at the first session. Developing countries are pressing a long-standing demand: more rights to tax at source, particularly on services, under rules where one country means one vote. What remains to be seen is how much a convention would be worth if the main home countries of the multinationals declined to ratify it.
One last project got underway under Brazil’s G20 presidency in 2024: taxing the ultra-wealthy. A report commissioned from Gabriel Zucman proposed a minimum tax of 2% of net worth on the world’s roughly 3,000 billionaires, with an estimated yield of $200 billion to $250 billion. The finance ministers meeting in Rio went no further than a pledge to cooperate. Automatic exchange of information has made the idea technically conceivable. Politically, it has yet to clear a single legislature, as its defeat in France showed.
The Scorecard: Two Fronts, Two Outcomes
÷3 in ten years
Offshore financial wealth still equals about 10% of world GDP, but roughly three-quarters of it is now known to tax authorities — almost none was, before 2013.
~35% unchanged
About 35% of multinationals’ foreign profits were still shifted to tax havens in 2022 — roughly the same share as when the BEPS project began.
On individuals, the success is clear. The EU Tax Observatory estimates that offshore evasion has fallen by a factor of about three in ten years. Financial wealth held offshore still equals roughly 10% of world GDP, but about three-quarters of it is now known to tax authorities, compared with almost none before 2013. Blind spots remain: real estate, freeports, tax residencies of convenience, and the United States, which receives data without providing the equivalent in return.
On corporations, the verdict is harsh. The same observatory puts profits shifted to tax havens at close to $1 trillion in 2022, or about 35% of the profits multinationals book outside their home countries. That share has not fallen since BEPS was launched. Transparency has improved and the crudest structures have disappeared, but the accounting geography of profits has barely moved.
A Village Without a Town Hall
So “harmonization” is the wrong word. No rates have been unified and no common tax base exists, not even within the European Union, where the unanimity rule sank the consolidated tax base proposal of 2011, then the one from 2016, and now threatens their 2023 successor. What has been built is something else: an infrastructure of mutual surveillance, and a floor. Countries remain free to set their own tax policy, but they can no longer sell other governments’ ignorance.
McLuhan’s global village now exists in tax matters, in the sense that everyone in it can be seen by everyone else. What it lacks is a town hall. Its rules were written by the dominant power of the day, which exempts itself when they get in the way, and by a club the rest of the world rejects more and more openly. The century that four economists opened in 1923, worried that people might pay twice, is closing on the opposite question, still unresolved: how to make sure everyone pays at least once, and to whom.