New analysis identifies alternatives that raise greater revenues and retain sovereignty
Tax specialists from the BEPS Monitoring Group, a network of leading experts from around the world who track and evaluate the process begun in 2013 by the OECD to reform global tax rules, have published a new report on the OECD’s long-delayed package of measures, ahead of members of the OECD ‘Inclusive Framework’ meeting in Paris next week to discuss the package.
The report lays bare “needless” and “fundamental flaws” in the measures, and urges countries to consider a range of revenue-raising alternatives identified by the watchdog.
The report was prepared with contributions from the secretariat of the Independent Commission for the Reform of International Corporate Taxation (ICRICT) – whose members include the Nobel Prize winning economist Joseph Stiglitz, and renowned economists Jayati Ghosh, Gabriel Zucman and Thomas Piketty – and from the South Centre, the Tax Justice Network, and with additional technical expertise provided by members of the UN tax committee.¹
The report’s findings corroborate several independent analyses conducted by a range of bodies, including the IMF, that all show that the OECD proposals will not curb corporate tax abuse to any significant degree, and that benefits for lower income countries are highly questionable.²
Fundamentally, the findings confirm that the OECD proposals do little to prevent profit shifting by multinational corporations – which is at the root of the sustained, industrial-scale corporate tax abuse that the current rules have allowed to proliferate.
The report also shows that the OECD proposals will also introduce a high level of complexity and uncertainty, while locking in a significant loss of sovereignty over tax policy space if countries sign up.
The authors analyse the limitations of the OECD’s proposed measures, and their unsuitability for lower income countries, in great detail. The authors recommend such countries to take action to adopt measures in response, especially to the global minimum tax (the GloBE), implementation of which is under way.
The report urges countries to introduce measures to prevent multinationals from shifting profits away from the countries where real economic activities take place – the central issue of corporate tax abuse, which the OECD proposals fail to address, according to the analysis.
The authors pin a large of share of the blame for the faults in the OECD’s package of rules on negotiations at the OECD. Although the detailed technical standards produced by the OECD’s experts provide key building blocks for a new approach, the authors argue, the actual measures now proposed result from negotiations dominated by the rich OECD members that are the home countries of multinationals and the main facilitators of their tax avoidance.
As an example of the problematic outcomes of these negotiations, the authors point to how the OECD’s complex minimum tax package now includes a provision that allows countries that have enabled and benefited from profit shifting to apply a minimum top-up tax that will make it easier for them to continue offering their preferential regimes. A number of major corporate tax havens including Lichtenstein, Switzerland, Singapore and Hong Kong, are already moving ahead with such a tax, designed to ensure they can continue to enable companies looking to shift their profits from elsewhere.
This echoes analysis from the Switzerland-based Alliance Sud, which has criticised OECD negotiations for distorting the minimum tax rate from a speed limit for Switzerland’s tax havenry into a “reward programme”.3
Countries inside and outside the Inclusive Framework now face a crucial decision period. The OECD process, which was scheduled to deliver its reform package back in 2020, may finally soon reach the stage of publishing a proposed multilateral convention. However, it would apply to only a small share of the profits of around one hundred of the largest and most profitable multinationals, leaving in place the present ineffective and unfair rules for all other purposes. In exchange, participating countries would be obliged to remove digital services taxes that have brought in substantial revenue. Yet the multilateral convention is extremely unlikely to come into force, since it would require ratification by a critical mass of countries – including crucially the United States, where the Congress is very unlikely to give its approval.
With the OECD reaching the end of the road in its attempts to lead the reform of international tax, attention is shifting to negotiations at the United Nations, where countries have unanimously agreed to take forward intergovernmental discussion on a new international framework for tax cooperation.4 The authors argue this could finally establish a proper global and accountable institutional framework, and a paradigm shift towards a more comprehensive approach to tax reforms that are crucial for states facing multiple crises and searching for sustainable development.
Lead author of the new report, coordinator of the BEPS Monitoring Group and senior adviser to the Tax Justice Network, Prof Sol Picciotto said:
“Developing countries should not commit themselves to the OECD´s GloBE proposal, which is unfair and ineffective. Our analysis reveals how these proposals are inappropriate for poor countries, and puts positive alternatives on the table instead. We strongly recommend tax authorities and finance officials to reject pressures and advice to join the GloBE, and instead adopt their own measures, as countries such as Colombia, Nigeria and India have been doing. These can be compatible with the GloBE, more effective, and much easier to administer. ”
Tax Justice Network chief executive and report co-author Alex Cobham said:
“This new analysis confirms just how harmful it would be for most countries to commit to the OECD proposals – and how irresponsible it is for others to seek to bully them into agreeing. Countries do need to respond with speed to the coming changes, however, and the report shows how alternative approaches can protect countries’ sovereignty and offer a powerful defence against profit shifting – something the OECD approach singularly fails to do.
“The OECD has failed to deliver an effective response to corporate tax abuse, has failed to run a transparent and accountable process, and has failed to ensure that non-member countries are included in a meaningful way. There could hardly be a better advertisement for countries inside and outside the OECD to give their full attention to the negotiation of a UN tax convention and a globally inclusive rule-setting body under UN auspices.”
Notes to editor
- The report from the BEPS Monitoring Group can be found here. It was drafted by Abdul Muheet Chowdhary, Alex Cobham, Emmanuel Eze, Tommaso Faccio, Jeffery Kadet, Bob Michel, and Sol Picciotto.
- A study by the South Centre and the Coalition for Dialogue on Africa (CoDA) can be found here, and a EU Tax Observatory report can be found here. More information about the failure of the OECD’s “two pillar” proposal is available hereand here. IMF research on the revenue returns to the OECD proposals can be found here (see Figure 1 and Figure 5 on Pillar 1 and broader revenue impact), and here (a comparison of Pillar 1 with digital sales taxes for Asian countries).
- Read the analysis from Alliance Sud’s senior policy officer for tax and finance policies, Dominik Gross, here and here.
- More information on the historic UN vote is available here. More information on the European Parliament’s recent backing for a UN tax convention is available here.
About the BEPS Monitoring Group
The BMG is a network of experts on various aspects of international tax, set up by a number of civil society organizations which research and campaign for tax justice including the Global Alliance for Tax Justice, Red de Justicia Fiscal de America Latina y el Caribe, Tax Justice Network, Christian Aid, Action Aid, Oxfam, and Tax Research UK.