Global agreements on taxation and international finance are so rare that it is difficult to fault politicians for taking advantage of them. It’s no surprise, then, that last week’s OECD tax deal was followed by a series of slaps and self-congratulations. The President of the European Commission, Ursula von der Leyen, called it a “historic moment”.
And the hyperbole wasn’t just on this side of the Atlantic. US Treasury Secretary Janet Yellen told reporters the deal “will end the four-decade race to lower corporate taxes.”
It would be rude to reject the agreement in its entirety. Establishing the principle that multinational corporations can be taxed where they generate profits, not where they are located, and setting a minimum corporate tax rate at 15%, is a step forward and will increase tax revenue of the Treasury that have been hit hard by the Covid pandemic.
Equally important is that EU legislation to put the deal into force appears to be adopted and could involve other more ambitious measures to tackle tax evasion.
After so many years of having their hands tied in the need for unanimity, usually by countries like Luxembourg, Ireland, Cyprus and Malta, all tax havens in their own way, the EU finally has a breakthrough.
But even if we can look forward to a step forward, it is still only a small step.
We can haggle over the level of ambition of the new tax rate or its scope. But the OECD agreement has one major and irremediable flaw: it will not significantly help developing countries, which are currently losing the most to illicit financial flows and companies playing with the tax system.
In fact, they weren’t even involved in the negotiations.
The OECD may have a reputation as a club of rich countries with good intentions, but its 38 full members do not include any developing countries. The “inclusive framework” set up by the OECD to discuss international tax policy includes only 27 of the 54 African states.
It should not be deceived that there is anything terribly progressive in a taxation decided only by the rich States without the involvement of those who are the main victims of illicit financial flows and tax evasion.
The group of developing countries of the G77 has been campaigning for years for global tax policies to be entrusted to a new tax body under the aegis of the United Nations in which they would be represented. The EU, along with the US and Japan, blocked the proposal.
Nigeria and Kenya were among the African countries to refuse their support for the OECD package. Other finance ministers have complained that they actually had two bad options to choose from.
This may not be a problem right now, but until the tax system is truly global loopholes will continue to exist, meaning companies can avoid paying their share.
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Finally, like every Friday, our weekly Digital Brief brings you all the latest digital news: do not hesitate to consult it.
Pay attention to…
- 18 – 21 October Plenary session of the European Parliament in Strasbourg.
- Foreign Affairs Council of October 18
Views are those of the author
[Edited by Zoran Radosavljevic]