Tax “Deal of the Rich” will not benefit developing countries
A call on civil society organisations from around the world to reject the forthcoming G7/G20/OECD tax deal
The COVID-19 pandemic and its impacts present a historical opportunity to reform global corporate taxation and transform our tax systems to make them more responsive to the needs of people and the planet. It is unconscionable that the solutions offered by the world’s elite countries only serve to reinforce inequalities in the global tax regime that have long excluded the voice and interests of developing countries and peoples in the Global South.
The Global Alliance for Tax Justice and many in the tax justice movement were critical regarding the leadership role of the OECD, which is a club of the rich, to reform international tax rules. To give its leadership the veil of legitimacy it created an Inclusive Framework (IF), which has so far barely gone beyond rubberstamping the Group of Seven (G7) “deal of the rich”. The proposals in the OECD-led Inclusive Framework’s statement on July 1 for new global tax rules, do not address the fundamental problems of the current international tax architecture. It is designed to accommodate the recent deal of the G7 on a global minimum corporate tax rate of 15%, and disregards the suggestions, proposals and reservations that a number of developing countries have put forward throughout many years of work.
The “solutions” do not address the root causes of the current practices and rules that incentivise profit shifting and facilitate tax dodging with impunity. Limiting the scope of the OECD/IF Pillar 1 “solution” to a hundred or so multinational corporations (MNCs) will not enable developing countries to raise more tax revenue from all MNCs. The agreed global minimum tax rate of 15% in Pillar 2 is far lower than the world corporate income tax rate average of approximately 25% and closer to the 12.5% proposed by some low/no tax jurisdictions. Setting the global minimum at this level would not do much to benefit the big group of developing countries who have much higher statutory corporate tax rates. Instead of stopping the “race to the bottom” tax competition, this low rate will put countries with a higher corporate income tax rate into a “race to the minimum”. In addition, as proposed by the OECD, Pillar 2 would give the great majority of new revenues to the (OECD) headquarters countries of multinationals, instead of the lower-income countries that lose the highest share of their tax revenues due to the failures of the current rules.
Far from ensuring the taxing rights of developing countries, the “solutions” will limit the right to tax of source countries to a small proportion of MNCs’ profits and entrench taxing rights to headquarter countries over global profits. The institutional arrangement in which these “solutions” are being “negotiated” lacks legitimacy, transparency and accountability. The “negotiations” behind closed doors expose developing countries’ representatives to political pressures and manipulation to agree to the deal of the rich.
A solution agreed in a politically biased and opaque process, outside the UN system and the related accountable country representation, cannot have the legitimacy to be a binding international agreement. A fair global deal is only possible in an open, fully inclusive and transparent intergovernmental process, in which the public and civil society can hold negotiators to account for proposals and decisions, and in which the draft agreements are open to public scrutiny. Such a process is only possible within the framework of a UN based intergovernmental negotiation in which countries can participate as equals.
We therefore reiterate our call for the establishment of a universal, intergovernmental UN tax commission and negotiating a UN Tax Convention to comprehensively address tax havens, tax abuse by multinational corporations and other illicit financial flows. We call upon countries to overcome the blockage to bring reform of international tax rules into the UN and work together for a truly inclusive and transparent negotiation process.
In order to endorse this statement and add your organisation to the list of signatories, please fill in this form until 4 October 2021 at 5pm (EST)
Note: The full statement of Global Alliance for Tax Justice with Spanish translation is available here: GATJ Statement on the forthcoming G7-G20-OECD tax deal PDF