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A Wasted Opportunity: Little to Celebrate in OECD Tax Deal

A Wasted Opportunity: Little to Celebrate in OECD Tax Deal

Alternative Information and Development Centre (AIDC) | STATEMENT | 05 July, 2021

At the OECD’s Inclusive Framework meeting last week, 130 countries, including South Africa, put their support behind the OECD’s two-pillar plan for the global taxation of multinationals. This plan is far from the historic challenge to corporate impunity it could have been. Instead, for the developing world it stands as a toothless testament to the futility of trying to challenge the rich and powerful on their own turf.

The pandemic has pushed over 100 million, globally, into extreme poverty, simultaneously many transnational corporations have increased their wealth. While the unemployed and working class in countries such as South Africa struggle to survive in the face of austerity, underfunded public services and missing economic relief, transnational companies continue to funnel trillions of dollars from developing countries, into tax havens around the world. As the Samancor case has shown, corporate profit shifting also doesn’t just mean lost tax revenue; it also means lost resources for improved wages, working conditions, and social development.

Instead of meeting these challenges head-on, the two-pillar plan agreed on last week has been widely criticized as inadequate and overly accommodating of TNC’s. Pillar One is supposed to distribute a portion of transnational’s global profits for taxation in nations where they make sales. However, the rules are overly complex, applying only to a small portion of transnationals, and even then only to a small portion of their profits. Furthermore, given that it’s based on sales alone, Pillar One will perpetuate inequalities as developing countries responsible for where the bulk of production takes place will not be fairly compensated for this.  Inclusive Framework members signing on to the multilateral instrument will also have to give up some of their sovereignty by agreeing to binding dispute resolution mechanisms and giving up their own domestic Digital Service Taxes and other similar measures.

Pillar Two, the much lauded global minimum tax rate, is set at a paltry minimum rate of 15% that will only turn the tax “race to the bottom” into a “race to the minimum”. However, the most egregious insult to the developing world is found in how these tax revenues will be distributed. Under the current proposal, the countries where transnationals are headquartered will be first in line for the tax revenues. In reality, “source countries” which are most impacted by the loss of tax revenues, such as South Africa, are likely to see very little benefit, while the wealthy countries in the G7 and OECD, where transnationals are headquartered, will get the lion’s share of the revenue.

Although a global tax plan is desperately needed, it is clear that the G7 and OECD have strong-armed their way into setting the terms and agenda of these reforms to their benefit. The developing world has not been allowed a full say in the present negationations, with the members of the Inclusive Framework being pressured to either adopt or reject the entire statement of support, giving little room for criticism. We therefore support the call for an alternative global tax reform process under the United Nations; a process that is transparent, democratic, and which puts the interests of the crisis-stricken developing world first, rather than prioritising the interests of a rich countries’ club such as the G7 and OECD.

For more information, contact:

Jaco Oelofsen | Researcher:

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