Alex Cobham ■ Global taxing rights: ‘The genie is out of the bottle’


The OECD process to reform the international tax rules for multinationals is at a critical point. The secretariat’s proposals have drawn widespread criticism, not least for sidelining the perspectives of non-OECD countries; and the US has blown up the agreement with France that underpinned the secretariat’s approach, threatening instead to impose trade sanctions. But the dramatic policy shift to taxing multinationals on their global profits, rather than treating each subsidiary separately, now seems to be entrenched. The question is, where will things go from here?

Yesterday the Tax Justice Network held a virtual conference, ‘Where next for global taxing rights? Technical and political analyses of the OECD tax reform’. The keynote speeches, presentations and discussions focused on assessments of the revenue redistribution between countries that various proposals could generate, and on the political prospects for the process as a whole. We were delighted to have high-level contributions from key international organisations, including the OECD secretariat. And while the debate was sharp, the degree of consensus was unexpectedly strong.

Four points of broad consensus

First, there was clear consensus that the global distribution of taxing rights is unjust, and deeply so. Far too much profit ends up in low- or no-tax jurisdictions rather than where the real economic activity takes place, and the revenue implications of this are very substantial.

Second, it was also clear that we do not yet have a combination of data and methodology to generate comprehensive results on the redistribution of taxing rights that different proposals would lead to. The quality and confidentiality of OECD country-by-country reporting data are major obstacles.

The 2020 review of the OECD country-by-country reporting standard provides a very well-timed opportunity to sort out the technical basis – and the just-published GRI standard provides a technically robust alternative, to which the OECD standard should converge. The potential EU decision to make their OECD standard data public would overcome the issue of secrecy of this data. While the conference was in session, we heard the news that the Austrian parliament has now backed publication, which could shift the decisive vote among member states (many congratulations to Attac Austria, VIDC and KOO!).

The third point of consensus was that the Inclusive Framework has definitely been a real step forward; but that the distribution of political rights over international tax reform is perhaps even more unjust than the distribution of taxing rights. It remains an open question whether the OECD process can evolve to give non-members a genuinely ‘equal say’. If not, an explosion of unilateral measures seems likely; unless a consensus were to emerge on a UN forum…

Finally, the last panel came to a very clear conclusion, starting with the World Bank and IMF speakers, and confirmed by the OECD’s Ben Dickinson: there is ‘no turning back’ on either the shift to a unitary approach, or on the political imperative of addressing global taxing rights. ‘The genie is’, well and truly, ‘out of the bottle.’

International tax rules: ‘a colonial pattern, refined for the 21st century’

Prof Jayati Ghosh of Jawaharlal Nehru University, and the Independent Commission for the Reform of International Corporate Taxation (ICRICT), gave the opening keynote speech. In it, she laid out the key injustices of the current tax rules as they form part of our current, imbalanced globalisation – ‘a colonial pattern, refined for the 21st century’; and then detailed the technical and political flaws in the current proposals and process. In particular, Prof Ghosh highlighted the arbitrary and illogical nature of imposing a distinction between residual and routine profit; the value of treating all global profits equally, apportioning them between countries according to the location of multinationals’ real economic activity; and the importance of including employment and not (only) sales as a measure of that activity.

The second keynote was delivered by Dr Marilou Uy, director of the secretariat of the Intergovernmental Group of Twenty-Four. Dr Uy presented the G24’s view of the OECD process. On the one hand, she highlighted the value of the opportunity to contribute more fully than had previously been allowed. But on the other hand, Dr Uy identified a series of obstacles in the process. These include the short timeline of the process, making it difficult to bring together the resources to provide a full response reflecting member countries’ concerns and wishes; and the damaging lack of information available to assess the options. Dr Uy closed with a quote from the IMF in respect of the process for setting international tax rules – namely, that ‘ an approach more universal in its full inclusion of countries and its coverage of fundamental policy issues is needed’ (p.46).

Data, methods and transparency

The first panel featured six speakers, offering a combination of technical insights on the reform proposals, and perspectives on the technical aspects of the process. David Bradbury, who leads the OECD team charged with carrying out the economic assessment of the proposals, laid out the broad strokes of their findings so far – namely, small but positive revenue redistribution from the secretariat’s pillar one proposals, with larger but uncertain wins possible from the less well-defined pillar two proposals. Mr Bradbury also highlighted the difficulties of data, and the weaknesses of the reporting provided by multinationals under the OECD’s country-by-country reporting standard. The secretariat has provided each Inclusive Framework country separately, and confidentially, with the basis for estimates of the revenue impact of the secretariat proposal.

Ruud de Mooij of the IMF’s Fiscal Affairs Department presented a summary of key findings, highlighting as Jayati Ghosh had done, two key points: the much larger redistribution associated with a full unitary approach (compared to the residual profit approach); and the importance, for lower-income countries above all, of including employment in any formula.

Prof Valpy FitzGerald of Oxford University and ICRICT presented the findings of a paper co-authored by Tommaso Faccio and me. Using aggregate OECD country-by-country reporting for US multinationals (the only such data currently public), the paper confirms the much greater revenue redistribution away from corporate tax havens that would be delivered by a full unitary approach (e.g. the G24 proposal, as compared to the OECD secretariat’s proposal). The paper also confirms the importance of employment as a factor, for all country groups except the US (although that pattern might well be different for non-US multinationals).

Prof Kim Clausing of Reed College provided an overview of critiques of the available data, and from forthcoming work a rigorous assessment of the value of profits shifted by US multinationals, drawing on different data sources and subject to varying assumptions.

Abdul Muheet Chowdhary of the South Centre drew on the South Centre’s own conference from earlier in the week. He was particularly critical of the lack of detail, either of methodology or actual findings, of the OECD’s economic assessment. Questions from the floor also raised the question of why governments had been told they could not share the OECD’s assessment for their country alone, with media or civil society.

Finally, Lauri Finer, a special adviser in the Finnish ministry of finance, provided a view from an individual high-income country. Finland has not yet developed its own estimates of overall revenue impacts, but from some estimates for individual countries they are expecting very small changes indeed: perhaps 0.1% of tax revenue, or 1% of corporate tax revenues, and uncertainty over even whether this would ultimately be a gain or a loss.

Politics and process: ‘We don’t want to lose the opportunity’

The second panel focused on more political aspects. Stephanie Soong Johnston of Tax Notes facilitated a discussion featuring Marilou Uy and also Ben Dickinson, the OECD’s Head of Global Relations and Development; Marijn Verhoeven, head of the World Bank’s global tax team; Vicki Perry, Assistant Director of the IMF’s Fiscal Affairs Department; and Prof Sol Picciotto, coordinator of the BEPS Monitoring Group, emeritus professor at Lancaster University, and one of the Tax Justice Network’s senior advisers.

Ben Dickinson identified three ‘quite radical departures from the past’. First, that multinationals will be treated as single entities, and so global profits will be assessed. Secondly, a formula will be applied to divide up that profit globally; and third, the idea of a fixed return for routine distribution functions. He closed with the view that ‘we are on track, heading for what we hope is the beginning of a political agreement in early 2020.’

Marijn Verhoeven argued that the level of detail available early next year may be key in determining the extent to which individual countries are able to apply what is agreed. Expecting that little detail would in fact be available, he speculated on a possible role for the Platform for Collaboration on Tax. Particular issues need to be addressed for lower-income countries to benefit, such as their right to require direct access to country-by-country reporting from multinationals. An important, open question is whether any agreement will be sufficient to see countries pull back from unilateral measures such as digital services taxes.

Vicki Perry noted the extent of agreement on (some) formulary apportionment under pillar one, and (some) minimum tax arrangements under pillar two; but highlighted just how much distance there is from those generalities to meaningful agreement on the hard specifics. The absence of solid, quantitative analysis on the revenue impacts, including for lower-income countries, is a major issue. At the same time, minimum tax arrangements – especially for inbound foreign direct investment – are key, but may be under pressure in the potential agreement. At a broad level, there are clear political risks to the process; but the potential gains are great, and it is heartening that there is a forum now for lower-income countries to engage in. Impact on the latter must remain the focus.

Sol Picciotto began his remarks by noting that ‘finally, we are now having the right conversation’. With country-by-country reporting data, we are able to begin a proper discussion of unitary taxation and formulary apportionment. The issues under discussion would potentially require coordinated revision of all tax treaties around the world, which may simply not be realistic; but in fact those treaties have been misapplied, in respect of transfer pricing approaches, and so the applicability of formulaic approaches without treaty revision can be reconsidered.

In the subsequent discussion, Ben Dickinson revealed that the Inclusive Framework Steering Group was at that moment in discussions, trying to understand the US position, which breaks sharply with both the overall work programme and the secretariat’s own unified proposal – and that the US had been clear that it is not withdrawing from negotiations.

Marilou Uy highlighted the need to make sure that the opportunity for change is not lost, and Vicki Perry confirmed this: ‘We don’t want to lose the opportunity to make some important changes that would bring the tax system more into line with reality than the one that was developed a hundred years ago.’ Sol Picciotto saw the US position as not unreasonable, however, because the secretariat’s proposal is not workable – and so a broader, principle-based approach is needed.

Overall consensus broke out again, with agreement that the major shifts in play are not now irreversible. The policy debate is now on formulaic approaches to multinationals’ global profits; and to be analysed in terms of the distribution of taxing rights between countries. Panellists agreed effusively that ‘there is no going back’, now that ‘the genie is out of the bottle’.


We’re enormously grateful to all the speakers and participants who made the conference such a success, and to the team here who ensured the entire thing ran smoothly. We’ll be blogging next week with a review of the exercise, including a round-up of media coverage and a rough calculation of the climate benefits of the virtual approach, and how we may use it in future.

In the meantime, you can find all the slides and video on the conference home page, which we’ll continue to update with links to relevant new research on the economic assessment of the reforms. And perhaps news of a follow-up conference…

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