The IMF has joined growing calls for a global minimum corporate tax and unitary tax with formulary apportionment in its new report titled, Taxing Multinationals in Europe.1 Liz Nelson, director of human rights and tax justice at the Tax Justice Network, who has been invited to speak on the report at an event tomorrow hosted by the European Parliament Subcommittee on Tax Matters, said:
“We’re delighted to see the IMF join the growing consensus set out by the UN FACTI panel on how to replace existing and failing global tax rules set by the OECD. Every year, countries lose hundreds of billions of dollars in tax to corporate tax abuse facilitated by tax havens that are officially rated as “not harmful” by the OECD.2 Those losses undermine health and public services all around the world, but are disproportionately borne by lower-income countries.
“The UN FACTI panel, the European Commission with its new tax proposal announced last week, and now the IMF are all calling for new international tax rules to be driven by two main reforms: a global minimum corporate tax rate, also supported by the Biden administration in the US, and unitary taxation. In other words, for multinational corporations to pay a minimum tax rate on their profit just like every other local business and for that tax to be paid in the places where multinational corporations actually do business, not where they reroute and hide profits.
“It’s not clear, however, why the IMF and EU have stopped short of endorsing the same push for wholesale reform among lower income countries. Why can the IMF recommend radical changes to improve progressive taxation in the EU, while the majority of IMF country recommendations to lower income countries continue to emphasise regressive consumption taxes as part of a ‘deal’ that shackles them to debt obligations? Meanwhile the EU risks giving the impression that it seeks reforms that benefit its own members, without any meaningful concern for others. The EU’s BEFIT reforms announced last week could valuably provide a model for other country blocs to follow, and for global reforms at the UN – but we’ve yet to see any indication of EU support for any others.
“The current EU trilogue negotiations over how to implement public country by country reporting are a case in point: the latest reports suggest that the EU will succumb to lobbying and only require public data on operations in EU member states (and the marginal states on the ‘non-cooperative jurisdiction’ list, which misses all the big profit shifting hubs around the world). That will make the data much less useful for EU members, and almost completely useless for lower-income countries – who will see their own data and that of non-EU tax havens simply aggregated into a single number. This will leave people in the dark about which corporate giants are bleeding them of vital public funds and sidestepping public accountability.
“The damage done by the failure of current OECD tax rules is overwhelmingly concentrated in damage to the human rights of people living in lower income countries. The opportunity to build for greater equality and to lift the most marginalised is effectively denied by this failure. But both the IMF and EU have thus far been silent on this while promoting policies that in effect worsen the situation. Both have now embraced in principle the tax justice agenda of unitary taxation with formulary apportionment, and a global minimum corporate tax rate. And both have substantial international power to push that tax agenda through. Let today be the day that the EU and IMF dedicate themselves to supporting globally inclusive reforms through a UN process, as the FACTI panel has recommended.”
Notes to editor
- The IMF’s new report, titled Taxing Multinationals in Europe, is available here.
- The Tax Justice Network’s analysis of the OECD flagship safeguarding policy against harmful tax behaviours by countries, known as BEPS Action 5, found that the policy failed to detect almost all corporate tax abuse risks documented by the index. Countries responsible for 98 per cent of the global corporate tax abuses risks documented by the Corporate Tax Haven Index 2021 were graded as “not harmful” by the OECD under Action 5.