Earlier I posted (here and here) some general thoughts about the idea of a global minimum corporate tax. Some objections have been raised to its constitutionality (see here from the Wall Street Journal editors). Having taken a closer look at the agreement (such as it is) released by the participating countries earlier this month, I have some more specific thoughts.
The “agreement” in my view is at this point just a nonbinding statement of the general common parameters under which the participating countries are negotiating. Its title is “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.” It does not describe itself as an “agreement”, “convention”, or any other term commonly used in international law to indicate a binding instrument, nor does it make any reference to it being a binding commitment. It is not signed on behalf of any participating government. Throughout, it uses the word “will” (e.g., “There will be a new special purpose nexus rule …”) rather than “shall” or some similar word customarily used to indicate a binding agreement. And it is light on details, making it evident that large amounts of the “agreement” will be filled in later.
All of this points to the “agreement” (as it is being called in the press, although the instrument itself is labelled only a “statement”) being only a political commitment — that is, a nonbinding expression of a common diplomatic interest or goal among the parties that is not understood as a legal undertaking in international law. In that form, in my view it is entirely constitutional. As argued in Evading the Treaty Power, a nonbinding political commitment does not infringe the treaty power because the essence of treaty is its binding nature. A nonbinding statement is, by definition, not a treaty:
The word “treaty” in the Constitution indicates a binding agreement under international law. Vattel, the leading international law writer of the eighteenth century, wrote: “He who violates his treaties, violates at the same time the law of nations; for, he disregards the faith of treaties,—that faith which the law of nations declares sacred.” Americans of the founding era were concerned that treaty violations would impugn the nation’s honor (an important consideration at the time) and more practically would give cause for war at a time when the United States was a weak nation militarily. In discussing the importance of treaties, members of the founding generation consistently referred to treaties’ binding nature. For constitutional purposes, therefore, an essential element of a treaty is that it is binding as a matter of international law.
Nonbinding agreements are necessarily not treaties, because (by definition) they lack the essential characteristic of bindingness and therefore lack the corresponding implications for preserving honor and not giving offense. A nonbinding agreement is in effect a statement of policy (or rather multiple parallel statements of policy) which the relevant parties understand can be changed unilaterally in any party’s discretion. Because a nonbinding agreement is not a treaty and does not implicate the concerns of a binding commitment, the treaty-making clause is not relevant to its constitutional status. Put precisely, the treaty-making clause does not preclude the President from making nonbinding agreements.
Of course, the President still needs a source of constitutional power to enter into political commitments with other countries. In my view, that power is supplied by Article II, Section 1’s vesting of executive power in the President. As argued many times (but originally here, with Saikrishna Prakash), the original meaning of that clause is best read to include foreign affairs powers not allocated elsewhere by the Constitution — especially diplomatic power. (In this particular case, the authority might come from the President’s power to negotiate treaties, a point to be discussed later.)
This conclusion is reinforced by the Statement’s treatment of the two “pillars” of the “solution.” As described by the Journal in the editorial linked above,
The deal comes in two “pillars” in the argot. Pillar one introduces a new method for determining which governments get to tax the revenues of the world’s 100 or so largest companies. Pillar two is a global minimum corporate profits tax with a rate of 15%.
As to the first pillar, it is principally concerned with what it calls “Amount A” (basically, the allocation of taxing authority for multinationals). And it states directly that “Amount A will be implemented through a Multilateral Convention (MLC), and where necessary by way of correlative changes to domestic law, with a view to allowing it to come into effect in 2023.” Further:
In order to facilitate swift and consistent implementation, an MLC will be developed to introduce a multilateral framework for all jurisdictions that join … Following its signature, jurisdictions will be expected to ratify the MLC as soon as possible, with the objective of enabling it to enter into force and effect in 2023 once a critical mass of jurisdictions as defined by the MLC have ratified it.
Thus, pillar one contemplates that its terms will be incorporated into a binding international agreement which the participating countries will then sign and ratify (or not). It is, then, in the nature of a term sheet or memorandum of understanding in commercial law. Reinforcing the point made above, participation in such an enterprise seems well within the President’s diplomatic power — the key, for constitutional purposes, is how the MLC is adopted.
Pillar two, in contrast, appears not to contemplate a binding agreement at all. This is the part containing the minimum tax, which the Statement calls “the Global anti-Base Erosion Rules (GLoBe).” [Ed.: wow, that is quite a strained fake acronym.] The Statement goes on to say that:
The GLoBE rules will have the status of a common approach. This means that [participating countries] … are not required to adopt the GLoBE rules, but, if they choose to do so, they will implement and administer the rules in a way that is consistent with the outcomes provided for under Pillar Two…
And further:
Model rules to give effect to the GLoBE rules will be developed by the end of November 2021. These model rules will define the scope and set out the mechanics of the GLoBE rules.
Though not as clear as it might be, that sounds like implementation through a proposed model law that will be adopted (or not) by each of the participating countries at its discretion (like the proposed uniform laws, such as the Uniform Commercial Code, in U.S. domestic law). Again, that seems to be an enterprise well within the President’s diplomatic power, with the key being the treatment of the model rules once they are announced.
In sum, I don’t see any constitutional problems so far. It all seems in the nature of a diplomatic project either to produce a future international agreement or to produce guidelines for parallel domestic law approaches. The question for constitutional purposes is how all this is implemented. I will turn to that in the next post.
NOTE: This article was originally posted at The Originalism Blog, “The Blog of the Center for the Study of Constitutional Originalism at the University of San Diego School of Law,” and is reposted here with permission from the author.
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