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How the Inflation Reduction Act imperiled the OECD’s plans for a global minimum tax on corporations

Pascal Saint-Amans recently announced that he will step down as director of the OECD’s Centre for Tax Policy. For the past decade, Saint-Amans has led a coordinated global effort to curb the tax-dodging behavior of multinational corporations, an effort that culminated in a pledge last year by 130 countries–including the U.S.–to implement a global minimum tax. Now, with the passage of the Inflation Reduction Act, the U.S. is imperiling this global agreement. 

As a former tax advisor to some of the world’s largest corporations, I am well aware of the many strategies multinational corporations use to avoid paying taxes. Rather than adopting the global minimum tax, the recently passed act addresses domestic concerns that corporations aren’t paying their “fair share” by imposing a new tax on corporations’ book profits. This is the wrong approach.  

Corporations have gotten so good at dodging taxes that for all their complaining, they account for just over 5% of U.S. tax collections, leaving more of the tax burden to be borne by the rest of us. The act aims to close this gap by imposing an additional 15% minimum tax on the sizeable book profits publicly traded corporations, like Amazon and Netflix report, to shareholders. These companies often pay zero or near-zero rates of tax on that income, mostly by claiming perfectly legal tax deductions and credits for things like investments and research activity. 

It may seem surprising that profitable corporations pay no taxes–but there are sound reasons why book income reported to shareholders and the taxable income reported on the tax return differ. The financial accounting rules governing book income are intended to provide timely and useful information on financial statements to investors and the like. Tax policies governing taxable income, on the other hand, are intended to raise revenue and shape behavior, for example by encouraging economic growth and investments in clean energy. Taxing book income could incentivize managers to reduce book income by taking advantage of complexities in the financial accounting rules to avoid the tax, reducing the usefulness of book income to investors. It also takes power out of the hands of Congress because the tax book income doesn’t reflect many of the tax policy’s deductions and credits, reducing its ability to stimulate desired investments. 

A better approach is for the U.S. to follow through on Treasury Secretary Janet Yellen’s pledge last year to enact a global minimum tax. Under the global agreement, many countries will work together to ensure that multinational corporations pay at least 15% in taxes in each and every jurisdiction where they operate, regardless of local tax rates. By making good on the agreement brokered by the OECD, we can dramatically reduce the tax benefits garnered by multinationals from shifting their profits and operations to tax haven countries that are all too eager to offer competitive tax rates to attract this activity. 

It was widely reported that Democrats had to kill the global minimum tax to win Senator Manchin’s vote on the Inflation Reduction Act, without which they couldn’t have passed the bill. As a result, the Inflation Reduction Act reneges on our promise to join the global effort to stop multinationals from ducking their tax obligations and brings the U.S. tax system out of sync with the rest of the world.

The OECD’s progress in curbing multinational tax shenanigans may stall. Or, because the global minimum tax can still work without U.S. participation, the rest of the world could move forward implementing the agreement without us. But not participating in the agreement ourselves would actually allow other countries to collect the new global minimum taxes owed to us. Senator Manchin’s objections are estimated to cost us over $100B in tax revenues per year in lost tax revenues from the global minimum tax. 

If Democrats are able to hold on to their power after the upcoming midterms, they should repeal the nonsensical book tax and instead enact the global minimum tax–a tax that we’ve already committed to in theory but have failed to make a reality. A global minimum tax harmonized with the developed world is the best way to increase tax revenues, negate multinational tax strategies, and undermine tax rate competition among countries. A tax on book profits is not. 

Lisa De Simone is an associate professor of accounting at the McCombs School of Business, a Public Voices Fellow of the OpEd Project at the University of Texas at Austin, and co-host of the podcast Taxes for the Masses.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not reflect the opinions and beliefs of Fortune.

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The 4-day workweek has detractors but research shows employees get more sleep—and that could reduce ‘bad work outcomes’ 

Just as not every CEO buys into remote work, not every business leader thinks a four-day workweek is right for their company. Employees do appear to get more sleep, though, when given the extra day off—and that could help the bottom line.

“Sleep and work are sort of in competition with each other,” Christopher Barnes, a University of Washington management professor, told Bloomberg this week. “When you trade sleep for work, it’s problematic. You sacrifice your health and have bad work outcomes.”

Juliet Schor, a sociologist and economist at Boston College, is tracking organizations across the globe as they experiment with a four-day week. “Employers are realizing that if they can rethink where people work, they can also rethink how many days they’re on the job,” she said in a TED talk this year.

Among workers who switched to four days, according to her, the percentage getting less than 7 hours of sleep each night dropped from 42.6% to 14.5%, and they registered 7.58 hours per night of sleep, nearly a full hour more than they did before the change.

“I wasn’t surprised that people are getting a little more sleep, but I was surprised at how robust the changes were,” Schor told Bloomberg.

In survey results released this month by the 4 Day Week Campaign in the U.K., 46% of respondents said their business productivity has “maintained around the same level,” while 34% reported that it had “improved slightly,” and 15% said it has “improved significantly.”

But skeptics remain, and the four-day week isn’t for all, including companies that have otherwise shown flexibility by embracing remote work. FleetCor Technologies, for instance, lets certain employees work from anywhere, or use a hybrid model, which it says hasn’t led to a drop in productivity, according to TechTarget.

But the Atlanta-based firm, which processes workforce payments, isn’t considering a four-day workweek. “Our customers need us seven days a week,” chief HR officer Crystal Williams told TechTarget.

In Congress, progressive California lawmaker Mark Takano introduced the 32-Hour Workweek Act in July. The legislation wouldn’t penalize companies for not adopting the four-day workweek, but it would incentivize them to do so, as they’d be required to pay workers overtime after 32 hours.

“There’s economic, political, social upheaval,” he told the New York Times in March. Americans don’t “want to return to the same old normal.”

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Con Edison to sell U.S. renewable energy units to RWE in $6.8B deal (NYSE:ED)

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Consolidated Edison (NYSE:ED) announced Saturday it agreed to sell its wholly-owned Con Edison Clean Energy Businesses to German utility RWE (OTCPK:RWEOY) in a transaction valued at $6.8B.

Con Edison (ED) said the deal will allow it to “sharply focus on our core utility businesses and the investments needed to lead New York’s ambitious clean energy transition.”

RWE (OTCPK:RWEOY) said the acquisition will nearly double its renewables portfolio in the U.S. to more than 7 GW.

In light of the pending deal, Con Edison (ED) said it will forego its previously announced plan to issue up to $850M of common equity in 2022 and withdraw its equity guidance for 2023 and 2024.

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For European pharmas, poor Q3 performance makes the quarter one to forget (NYSE:GSK)

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Like most of the rest of the stock market, the third quarter is one to forget for major European pharmaceutical companies.

In Q3 2022, the S&P 500 was down ~5%. The SPDR MSCI Europe Health Care UCITS ETF, whose primary listing on Euronext Paris (ticker: STW), fared even worse, down 8% for the quarter. Its top 10 holdings are among the largest European pharmas based on market cap.

Europe’s biggest drug company, Roche (OTCQX:RHHBY)(OTCQX:RHHBF), was also the best pharma performer of the quarter, down only 2%.

A major overhang for the company is the impending launch of generics of one of its best selling drugs, Lucentis (ranibizumab), for age-related macular degeneration. In Q2, Roche (OTCQX:RHHBY) reported US sales of the treatment of CHF 316M ($320.1M), a decline of ~4% from the year-ago period.

On Monday, Coherus BioSciences (CHRS) will launch Cimerli, its biosimilar to Lucentis, in the US. In September, the European Medicines Agency’s recommended approval of Stada’s Ximluci biosimilar in the EU.

Roche is hoping that its follow-in to Lucentis, Vabysmo (faricimab), will blunt some of the blow from Lucentis generics. In Q2, it brought in sales of CHF 109M ($110.4M).

The second best performer of the month was fellow Swiss pharma Novartis (NYSE:NVS), which was down ~9%. While Novartis (NVS) benefitted earlier this year from several US drug approvals — such as Vonjo (pacritinib) and Pluvicto (lutetium Lu 177 vipivotide tetraxetan) — Q3 was much quieter on that front.

In the US in the quarter, the FDA approved a combination of the company’s Tafinlar (dabrafenib) + Mekinist (trametinib) for solid tumors with a certain mutation while in the EU, Scemblix (asciminib) was approved in August for chronic myeloid leukemia.

Novartis (NVS) just hit a 52-week low of $52.10 on Sept. 26. A major lingering concern for the pharma is the potential launch of generics of its blockbuster multiple sclerosis drug, Gilenya (fingolimod). It had 2021 sales of ~$2.8B. On Sept. 29, the US Supreme Court issued a stay on a mandate from an appeals court that would have allowed Gilenya generics.

Just behind Novartis (NVS) was Danish pharma Novo Nordisk (NVO), which was off ~10% in the quarter. A key highlight for the diabetes treatment company was its $1.1B acquisition of Forma Therapeutics (FMTX), which is focused on sickle cell disease.

In September, the company was buoyed by data from a late-stage trial showed that showed once-weekly insulin icodec led to better results compared to its own once-daily Tresiba (insulin degludec).

Novo Nordisk has benefitted immensely since the June 2021 approval of Wegovy (semaglutide) as a weight-loss treatment. In Q2, however, revenue of 1.2B Danish Krone (~$158.2M) compared to 1.4B ($184.5M) in Q1.

Wegovy will also likely soon have competition from Eli Lilly’s Mounjaro (tirzepatide). Although currently only approved for diabetes, Lilly is pursuing approval Mounjaro as a weight-loss treatment. In a head-to-head trial, Mounjaro beat Wegovy in terms of A1C and body weight reductions.

AstraZeneca (NASDAQ:AZN) lost 17% in the quarter. It hit a 52-week low of $52.65 on Sept. 26. The company did have some positive catalysts in the quarter in terms of readouts from several trials looking at expanding indications for several of its oncology treatments. Last month, however, Credit Suisse cut its rating to neutral saying that AstraZeneca’s (AZN) current stock price reflects its oncology potential.

The bottom two large European pharmas, GlaxoSmithKline (NYSE:GSK) and Sanofi (NASDAQ:SNY), lost, respectively, ~18% and ~26% in the quarter. GSK’s (GSK) major event in Q3 was the July spinoff of its consumer healthcare unit into a separately traded company, Haleon (HLN), which is also down significantly since it began trading.

Sanofi (SNY), as well as GSK (GSK) and Haleon (HLN), were also impacted in the quarter by worries over potential legal exposure to lawsuits over the heartburn drug Zantine (ranitidine) and apparent links to unacceptable levels of potential human carcinogen, N-nitrosodimethylamine. The companies have said there is no evidence that Zantac is linked to cancer.

One closely watched European pharma, BioNTech, was down 14% in the quarter. The company, which along with Pfizer (PFE) developed the COVID-19 vaccine Comirnaty, has been dealing with declining sales of the shots.

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