Historic steps have been taken towards global tax justice in recent weeks. It all kicked off in June, with the G7’s commitment to a global minimum corporate tax of at least 15% – and in which profit will be targeted based on multinationals’ place of sale, not place of residence. Then, 130 countries, representing 90% of the world’s GDP, backed the agreement at a meeting held by the Organisation for Economic Cooperation and Development (OECD) in Paris.

The cause is noble since our current (centuries-old) system of international profit taxation is no longer fit for purpose in the highly digital and globalised world. For too many years, multinational corporations, especially in tech, have paid next to nothing in tax thanks to (ridiculously named) manoeuvres such as the ‘Double Irish Dutch Sandwich’.

Meanwhile, to attract foreign companies, governments have engaged in a race to the bottom of lowering taxes. As a result, some estimates claim that as much as 40% of global foreign direct investment is incentivised by lower taxes rather than meritocratic business factors such as talent and infrastructure.

If the global tax reform is actually implemented (and this is a big ‘if’), it would raise annual corporate tax revenues by €6bn ($7.08bn) to €15bn for each of FranceGermany and the US.

Getting everyone on board will not be easy

While G7 and G20 have pushed the global tax reform forward, they actually have no power to bind a deal.

For too many years, multinational corporations have paid next to nothing in tax thanks to (ridiculously named) manoeuvres such as the ‘Double Irish Dutch Sandwich’.

The burden, therefore, falls on the 38 member states of the OECD that can legally implement proceedings, but by unanimous vote only (and yes, forget about any UN action on this). Reaching unanimity is no small feat, since certain members – such as Ireland and Hungary – are concertedly resisting change.

In fact, those two countries were among the OECD members that did not support the pact made at the recent Paris talks – alongside the likes of Barbados, Estonia and other smaller economies that are hugely and particularly reliant on maintaining very low corporate tax rates (below 15%) to attract all-important foreign investment.

Getting Hungary to toe the line will be especially difficult considering how consistently Prime Minister Viktor Orban, father of the self-named ‘illiberal democracy’, has subverted multilateralism in recent years. A thorn in the side of the EU (and therefore the tax deal), to say the very least.

As the gruelling negotiation process begins, appeasement in the form of ‘carve outs’ are likely to grow in number for different locations and sectors, thereby potentially degrading the integrity of any final agreement.

How would the deal hold people accountable?

Part of the challenge of reaching unanimity at the OECD, and then implementing any theoretical deal, will be an agreement over how the tax is properly collected.

An effective system with teeth is needed. As things stand, the idea is that companies that try to escape from the new tax laws will have their tax ‘topped up’ (by whatever difference they owe) in and by the country where they are headquartered. This is interesting but is by no means a proper system of accountability.

Moreover, it will institutionalise the role of global accounting companies – such as the big four of PwC, Deloitte, EY and KPMG – even more than they already are. This is far from ideal, considering their oversights vis-à-vis Wirecard and the Panama Papers. Confidence is lacking.

The other issue with the ‘topping up’ method is that it will only really work if multinationals keep their headquarters in OECD or tax-aligned countries. Corporate headquarter shopping is nothing new, particularly in developing markets.

What is to stop international companies from moving to a tax-dissenting nation? The top answer at the moment is: the construction of a new international institutional power – hardly the sexiest idea in today’s climate of neo-nationalism. On the other hand, some global players are keen to rebuild multilateralism in the post-Trump world.

Does the US have the wherewithal to push things through?

So, a brand new system of global tax governance is needed to keep countries and companies in check. To do this, the world will need the US to take the lead in luring or pushing nations into line.

On the plus side, the US is very good at luring or pushing. A decade ago, the Obama administration cracked down on Switzerland’s bank secrecy (which was helping Americans avoid tax en masse). Low and behold, the Swiss complied. Joe Biden is likely to turn to Obama’s playbook – but when?

Influencing Switzerland a decade ago is one thing. Twisting the arm of closer allies today is another. Will the US be willing to apply that kind of pressure against its EU partner Ireland or anti-China partner Singapore, especially at a time when (Irish) Biden is so keen to repair the distrust and division created by Donald Trump? Simply put, Biden is all carrots and no sticks at the moment, and it will take huge carrots to convince the likes of Ireland. Sticks, therefore, will be needed.

However, with Biden still playing Mr Nice Guy, tough-guy approaches might have to wait until a second Democrat administration (assuming this happens). Moreover, for the next year, Biden will struggle to pivot away from the carrot life. Then come the mid-terms of 2022, and everything becomes about the US election, a time in which presidents are hard-pressed to make major foreign policy (or domestic) moves.

The US is not the only superpower caught in a hard place. Does the Brexit-voting UK, for example, really have the political will to sacrifice its tax sovereignty to a new intergovernmental body that is larger than the EU, and possibly even less democratic?

Is there an alternative solution?

The creation of a new global tax infrastructure may simply be too much of a political ask – at least in the coming years.

A way around this would be to plug the holes in existing structures. One such idea is to better link bonds and credit lines to ESG commitments, with an emphasis on the ‘governance’ and good corporate citizen angle, an oft-neglected aspect of ESG, posits Maximilian Hess, head of political risk at Hawthorn Advisors.

You could tell companies that if they make a corporate move that lowers their effective tax rate, their interest rates will rise as a penalty.

Maximilian Hess, Hawthorn Advisors

Bond contracts are indeed a very powerful global governance institution that are frequently overlooked. As ESG financing becomes evermore popular, companies can often borrow green bonds cheaper than they can non-green financing.

“So you could tell companies that if they make a corporate move that lowers their effective tax rate, their interest rates will rise as a penalty,” says Hess.

“Admittedly, that is very hard to do, because it is not necessarily in bond holders’ interests to have a company pay more tax. But if we agree with [US Secretary of the Treasury] Janet Yellen and others, it will pay off in the long run. This is in all our interests. But another issue is that most tech firms are a lot less reliant on credit financing than they are on equity financing.”

Plugging the holes, therefore, is hardly an easy alternative to a brand new tax institution. While the global tax reform is an incredibly welcome paradigm shift, Hess, like many other commentators, expects it to be a decade-long affair. Even if things are agreed and implemented, the largest and most affluent will find loopholes. Anything, however, is better than what we have now.

Click here for Glenn Barklie’s assessment of the potential impact of the G7’s global minimum corporate tax, while on Energy Monitor, Nick Ferris looks at fossil fuel tax breaks.

This story was originally published on Investment Monitor, part of the GlobalData network. Further reading from Investment Monitor:

How low-tax jurisdictions hide the vulnerability of emerging economies