WORLD

A fair tax plan can discriminate against the global South – a global problem


The question is whether the Organization for Economic Co-operation and Development (OECD) agreement to force the world’s largest company to pay its fair share of taxes will benefit the global South. Credit: Hugo Ramos / Unsplash
  • By Ed Holt (Bratislava)
  • Inter Press Service

An agreement was reached on October 8, and covers about 90% of the world economy, including the global minimum corporate tax rate of 15%.

The Organization for Economic Co-operation and Development (OECD), which has led negotiations on the agreement, said it would help countries bring each other under taxation for decades.

But independent organizations campaigning for fair global taxes and financial transparency argue that it would rob developing countries of the revenue needed to recover from the Kovid-1 pandemic epidemic, ultimately pushing millions more into poverty.

Matthew Cohenen of the Financial Transparency Coalition (FTC) Civil Society Group told IPS: “In principle, a global minimum corporate tax is a good idea, but only if the rate is applied correctly and correctly. Under the agreement, the main beneficiaries are the OECD – which has led the negotiations – and its largest members.

The call for a minimum corporate tax rate has increased worldwide in recent decades amid growing scrutiny over the multinational tax system.

The OECD agreement, which has an ambitious implementation date of 20223, is designed to be based on corporate taxes and to stop the transfer of profits with the lowest tax rate that companies can find them.

The OECD says the lowest global rate would see countries collect about 150 150 billion in new revenue a year, and that tax rights on profits over 125 125 million would be transferred to countries where large multinationals earn their income.

But independent groups say the agreement is much less than what is needed for a sound global corporate tax administration and ignores the needs and aspirations of developing countries, which rely more on corporate taxes than rich states.

OECD Research According to Corporate Tax Statistics: Third Edition (oecd.org), In 2018, African countries raised 19% of total revenue from corporate taxation, as opposed to 10% in OECD states.

Critics point out that the 15% floor is much lower than the average corporate tax rate in about 23% of industrialized countries, which could potentially create a ‘bottom race’ as countries reduce their existing corporate rates.

It is assumed that several developing states wanted higher minimum global rates.

Civil society groups critical of the agreement also expressed concern about the many concessions in the agreement-there is a ten-year grace period for companies for some aspects of the agreement, and some industries, such as extractives and financial services, are exempt.

Meanwhile, they highlight, only 100 of the world’s largest companies will be affected by the deal, which means that highly profitable multinationals will have to pay higher taxes in the countries where they make a profit. Moreover, the minimum global tax will only apply to companies with a turnover of more than ৫ 50 million, excluding -5-90% of the world’s multinationals.

It is also problematic for some developing countries to waive the right to digital services tax, an important source of income. And there are concerns that in many cases the additional taxes paid by corporations will increase their tax bill to 15% where they are headquartered. In many cases, it will already be in rich countries like the United States, the United Kingdom and Europe.

Chennai Mukumba of the Tax Justice Network Africa Advocacy Group told IPS: “We have the opportunity to reform the global tax system to make it right for countries in the global south, but we are resolving much less. This is a lost opportunity to balance the scales, to keep the balance at the center of the system. ”

The agreement could have a negative impact, especially in African countries.

Kenya and Nigeria are among the four countries that have not signed the agreement.

“Many African countries currently have a corporate tax rate of 25-30%. If the minimum rate is 15%, there is a big incentive for companies to shift profits elsewhere, ”Mukumba said.

“Kenya has not signed the agreement because it is trying to collect revenue from its digital services tax rights. It can be stressful, ”he added.

OECD Impact Assessment Research Additional Corporate Tax Revenue for Contracts Published in 2020.

The agency told IPSK (OCT) this month that they are now expecting additional revenue due to changes in contracts from last year.

However, Study Pillar 1 Impact Assessment – 04.10.21 Final (oxfamireland.org) Global aid group Oxfam estimates that 52 developing countries will receive additional annual tax revenue under the redistribution of tax rights of only 0.025 percent of their combined GDP.

The group added that a 25% global minimum corporate tax rate would raise about 17 17 billion for the world’s 38 poorest countries – about 39% of the world’s population compared to the 15% rate.

Speaking shortly after the agreement was signed between the 16 countries, Oxfam said in a press release that the agreement was “a mockery of fairness that robs epidemic-stricken developing countries of much-needed revenue for hospitals and teachers and provides better jobs.”

It added: “The world is experiencing the biggest increase in poverty and a massive explosion of inequality in decades, but the deal will do little or nothing to stop it.”

Despite the criticism, OECD officials are adamant that the agreement will benefit developing countries.

They point out that it does not affect a state’s national corporate tax rate and that the 10-year grace period only applies to very small amounts of income – 5% of a firm’s carrying assets and a discretionary salary-allowance.

Grace Perez Navarro, deputy director of the OECD’s Center for Tax Policy and Administration, told IPS:

“Countries that have a rate of more than 15% do not need to reduce the corporate tax rate, it just ensures that those countries will be able to collect at least 15%, no matter how creative the tax plan is multinational.

“It will also incentivize multinationals to artificially shift their profits to lower tax areas because they still have to pay a minimum of 15%.”

He added: “This will reduce the additional pressure on developing countries, often providing wasteful tax incentives, while providing an engraving for low-tax activities that have real taxes. This means that developing countries can still provide effective incentives that Actually, the core attracts foreign direct investment.

But Mukumba said the problem was not that the deal would bring any additional revenue to developing countries, but that rich countries would get much more out of it.

“Developing countries want a global corporate tax, they have pushed for it in the past. They will get revenue under this agreement, yes, but rich countries will not go anywhere near it, ”he said.

This is problematic at a time when many developing countries are struggling with the effects of the Kovid-1 pandemic epidemic and need revenue.

“It will basically support recovery efforts in G7 countries rather than developing countries that have been most affected by the Kovid-1 pandemic epidemic and are debt-ridden, preventing them from generating enough revenue to recover from the crisis and ultimately throwing millions more people into it. Extreme poverty, ”Kohonen said.


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© Inter Press Service (2021) – All rights reservedOriginal Source: Inter Press Service





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