A Global Tax Deal for the Rich, Not the Poor

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NEW YORK – Historic, game-changing, revolutionary: such has been the widespread reaction to the recent  by G7 finance ministers on a global minimum effective tax rate of “at least” 15% for large multinational firms. The ministers also agreed on a new formula for apportioning a share of tax revenues from these companies among countries.

But whatever global tax deal eventually emerges should reflect the interests of the world – including the developing countries – and not just those of seven large, developed economies. The developing world relies more heavily on corporate tax revenue and has thus been hit harder by multinationals’ tax avoidance, which results in global revenue losses of at least $240 billion each year.

Many developing economies – and low-income countries in particular – are not even taking part in the negotiations on the wider OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. Those participating have been represented by the Intergovernmental Group of TwentyFour and the African Tax Administration Forum (ATAF), which coordinate the positions of members that are active in the negotiations. Some G24 members, including Argentina, Brazil, India, Mexico, and South Africa, are also in the G20.

The first concern regarding the G7 deal is that the proposed minimum tax rate of 15% is low, close to the rates in tax havens like Switzerland and Ireland. This reflects a preference by several G7 countries to protect their own multinationals rather than follow the lead of US President Joe Biden’s administration, which had initially called for a global minimum rate of 21%.

Moreover, under the current proposal, the majority of the additional tax revenues will go to multinationals’ home countries, not to the so-called source countries where these firms generate profits. Unsurprisingly, G24 members want source countries to have priority in applying the minimum tax, particularly in respect of payment of services and capital gains, in order to protect their tax base. Giving priority to global corporations’ home countries will reinforce rather than alleviate the unfairness already built into the current international tax system.

To read more, visit Project Syndicate.

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