Global South countries will be main losers of OECD minimum global minimum tax deal, risking undermining Covid-19 vaccination and recovery efforts
October 8th, 2021
October 8th, 2021
Today’s global minimum tax deal announced by the OECD will benefit global North countries –
particularly the US, a key player behind this agreement – at the expense of the people facing rising rates of poverty and inequality in the global South countries.
The global minimum tax rate of 15% is too low to raise substantial revenues in countries most impacted by the Covid-19 pandemic in the global South and we think a 25% rate would have been adequate in raising revenues especially in the global South countries, aligned with UN FACTI Panel recommendations stating a range of 20-30%. The deal also only involves 100 of the largest global companies, but only their highly profitable activities, which will then be distributed mainly to headquarter countries.
The deal is likely to increase some taxes in low-tax jurisdictions which is a positive sign, such as Ireland, the US state of South Dakota, Panama, British Virgin Islands, Malta, Cyprus, and the Isle of Man as a UK territory. There have been no impact global assessments, or public consultations where stakeholders can feed into. This is an example of deal making that lacks transparency. Indeed, Tax Watch notes that the US may gain $8.5bn from this deal per year, largely because headquarter countries are set to benefit, and many corporate headquarters are in the USA.
Crucially, the agreement not only means that a disproportionate amount of revenue raised will be allocated to the global North, but also that existing forms of taxing digital services provided multinationals such as digital services taxes proposed by some global South countries would need to be phased out, and no new ones allowed to be introduced. Also extractive industries and financial services are not included. Oxfam estimates that 52 countries in the global South are likely to be net payers in this deal as a result of having to end their digital taxes. They would be forced to do this in exchange for an uncertain revenue flow from a deal that will come into effect in 2023 at the earliest and is not due to be renewed before 2030.
If this deal was negotiated in the United Nations, such a split of revenue could not have happened. The OECD secretariat has ignored the negotiation positions of both the African Tax Administration Forum (ATAF) and the Group of 24 representing a range of countries in the global South. Instead, the needs of OECD and EU countries such as Ireland, Malta and Estonia which could block the deal being adopted at the OECD and the EU adoption were prioritised. Language in the deal has been made to accommodate this group of hold-out EU countries as they have effective veto, while ignoring and walking over legitimate interests of global South countries.
It is unfair that some countries have blocking rights in an OECD centric deal, while developing countries do not hold such a capacity. At the UN we would see greater revenues shared to Least Developed Countries (LDCs), and Small Island Developing States (SIDS) and other vulnerable groups of states as a matter of institutional principles. By doing this, the OECD tax deal fails to meet the ambition at the Sustainable Development Goals where a ‘global partnership for development’ would exist across topics, including Domestic Resource Mobilisation and tackling Illicit Financial Flows as key SDG goals and targets.
Furthermore, this deal does not live to the promise of the Addis Ababa Action Agenda (AAAA) of the Third International Financing or Development Conference, which also highlighted that “We will make sure that all companies, including multinationals, pay taxes to the Governments of countries where economic activity occurs and value is created.”
Unsurprisingly, four major developing countries representing half a billion people – Kenya, Nigeria, Pakistan and Sri Lanka – have refused to accept this agreement. Kenya and Nigeria which had been implementing their own digital taxes, would have them outlawed by this agreement, explaining in part their opposition. Meantime civil society in Africa have made a letter on #StopG7Deal, and consider that no deal is better than a bad deal for the African continent if it does not generate additional revenue and there is no greater participation in tax rule making.
Even developing countries that backed this deal like Argentina, a member of the G20, did so reluctantly. Argentinian Finance Minister Martin Guzman said that “we are left with a choice between a bad outcome and the worst case scenario – the worst being no deal; the current deal is bad,” while civil society has been equally vocal in fearing that the 15% tax rate which is now not even considered a minimum in the deal, may indeed become a ‘maximum’ leading a race to the bottom in corporate taxation especially given that in most Latin American and African countries the average corporate tax rate already averages around 25%. Similar concerns have been stated in Asia with the regional tax coalition TAFJA rejecting the deal very vocally.
As Matti Kohonen, Director of the Financial Transparency Coalition, says: “this deal mainly benefits the members of the institution that hosted the talks, namely the OECD and especially its largest member states. This will mainly support recovery efforts in the G7 countries instead of developing countries which have been most impacted by the Covid-19 pandemic and are more in debt, preventing them from generating enough revenues to recover from the crisis and ultimately throwing millions more people into extreme poverty We should have gone for a win-win scenario rather than win-lose solutions in global tax co-operation.”