new pillar prefinale
 

On July 10 2021, the G20 Finance Ministers and Central Bank Governors concluded their third meeting with a resounding endorsement of the unambitious and undemocratic two-pillar solution of the G7 and the OECD. The G20 endorsement is the latest rubber stamp to the agenda dominated and led by the Global North to redefine global tax rules exclusively for their own benefit. While painting the illusion of plugging foregone revenues, the G20 and the OECD’S two-pillar proposal is a false solution that opens more loopholes for tax abuses than it closes. The consequence of the OECD/G20 agreement is strikingly simple – it undermines the calls of peoples from the Global South for a comprehensive, democratic, and just system of global corporate taxation.

The so-called “Inclusive” Framework rests on the preservation of skewed global tax rules that have long favored the profit-driven interests of MNCs and the agendas of the Global North where they are headquartered.  It props up the pillars of inequality and exclusivity that deprive developing countries of the resources needed for sustainable and transformative development, denying their right to stand on equal footing in decision-making on global tax rules. The two pillars laid out in the OECD’s agreement consist of a proposed global minimum corporate income tax rate of 15% and a system for taxing large multinational corporations above a very high profit threshold, which gives priority of reallocating tax revenues to countries where MNCs are headquartered.

Setting the global minimum corporate tax rate at 15% only generates a paltry amount of tax revenues and largely benefits countries in Western Europe and North America, as the global average of corporate tax rates in developing countries is much higher at 25%. This triggers an even more dangerous race to the bottom where developing countries may be pressured to adopt the G20/OECD’s minimum rate, further eroding their rapidly dwindling tax bases.

Complementing this inadequate rate is another false solution that narrows its coverage down to a small number of large MNCs whose taxed profits can be redistributed to countries where sales are made. Not only does this provide a loophole for large MNCs to declare a lower share of their profits as “non-routine,” it also disallows developing countries where assets and labor of at least 6,000 multinational corporations are located from reaping their just share of taxed profits. The two-pillar ‘solution’ presented by the G20/OECD, an exclusive circle where the agendas of the Global North dominate, poses a barrier to the longstanding demands of developing countries for a just system of allocating taxing rights and for taxing multinational corporations’ profits. 

That the G7, G20, and the OECD sing the same tune is unsurprising: not only do they represent the interests of the richest populations in the world, MNCs that stand to benefit from maintaining the highly unequal tax system also reside within their borders. Membership to the OECD’s so-called ‘inclusive’ framework is advertised to developing countries to present a semblance of diverse representation. However, the process and outcome of OECD meetings time and again reveal the fundamental flaws and power imbalances inherent to the framework. 

Tax justice advocates from all countries must strongly reject this latest ‘false solution’ by the G20/OECD and other initiatives that stand in the way of thoroughgoing reforms needed to make tax systems and policies more responsive to people’s needs and rights. To dismantle the pillars of inequality and exclusivity, we must resolutely advance the agenda of transforming the global tax system and demand for a truly inclusive and democratic  inter-governmental mechanism under the auspices of the United Nations where all countries stand on equal footing.