Giles Merritt celebrates the new OECD-backed global deal on tax dodging, but warns that rich nations must work more closely on this with poor nations.
It’s been a zig-zag path for governments that have long wanted to nail tax-dodging mega-corporations, and 2023 will go down in the annals as the year they did so.
This should be good news around the world, yet it is criticised as another example of rich countries doing well at the expense of the poor.
Fewer than half of the African Union’s 54 member states have signed up to the deal that prevents ‘mobile’ multinational companies from shifting their profits from one tax regime to another.
The richest countries of the G-7 may be happy that hundreds of billions of yearly lost revenue are now within their grasp, but the world’s poorest nations are not.
The tax deal in question has been brokered by the Paris-based OECD, the Organisation for Economic Co-operation and Development.
The new arrangement covers 137 countries, but significantly only 23 African ones have signed up to it.
The absence of so many of Africa’s governments says much about the yawning gap between the world’s rich and poor, and the unwillingness of high-income nations to consult with less fortunate ones.
Their complaint is that the OECD’s new formula for levying tax on companies with global turnovers of $20 billion or more will chiefly benefit G-7 countries
The OECD’s multilateral convention on minimum and unavoidable corporation taxes was signed back in 2021 after years of tough bargaining.
That’s a polite way of describing the tail-twisting of governments that have benefitted from beggar-thy-neighbour sweetheart tax deals that lure big corporations.
As well as Ireland and Luxembourg, the Netherlands and the UK are notorious for their offshore tax havens.
The OECD reckons that up to $240 billion a year in lost revenues will be recovered from tax-avoiding companies.
It hasn’t been easy to secure international agreement on a minimum 15 per cent global corporate tax rate; not least because a high proportion of the multinationals concerned are American, notably digital giants like Facebook, Amazon, Apple, Netflix and Google – the so-called ‘Fangs’.
Closing tax loopholes that favour the shareholders of wealthy companies is a move in the right direction, and will be welcomed internationally.
But there are also good reasons why Nigeria, Kenya and Pakistan are among the eighty or so low-income countries rejecting the deal as unhelpful for their own economic development.
Their complaint is that the OECD’s new formula for levying tax on companies with global turnovers of $20 billion or more will chiefly benefit G-7 countries, channelling more than 60 per cent of the estimated $150 billion in new revenues to them even though they represent only a tenth of the global population.
These critics say low-income countries are being forced to surrender existing tax rights in return for highly uncertain new ones.
What is needed now is a new consensus on ways to ensure low-income countries receive the tax revenues they need and are entitled to
How this global convention will work in practice remains to be seen, but it’s already clear that the needs of poorer countries in Africa and elsewhere have been overridden by richer ones.
Africa is in the throes of a population explosion that by mid-century is expected to double its present 1.2 billion people, so the continent needs to create 200 million new jobs by 2035.
Only a massive turnaround in African countries’ tax revenues can finance the necessary manufacturing and infrastructure investments.
The OECD has acknowledged that the “agenda-setting process” that produced its global tax deal was “too top-down, without adequate consideration” of African and low-income countries’ needs.
But recognising there’s a problem doesn’t solve it.
Often labelled as “the rich man’s club”, its 38 member nations have markedly different priorities to those of the African Union.
Many of these industrialised nations are anxious to increase their tax revenues to help pay for the rising costs of their ageing populations.
Lower-income countries may justifiably complain that the new tax deal is unfair, but richer ones are determined to recover more of the estimated $240 billion lost yearly to tax dodging.
There is a common lesson for all governments around the world, whether rich or poor.
It is that where taxation is concerned they have long been their own worst enemies.
Their competing fiscal regimes and tax havens benefit tax-dodging corporations and the super-rich at taxpayers’ expense.
What is needed now is a new consensus on ways to ensure low-income countries receive the tax revenues they need and are entitled to.
*The views expressed in this Frankly Speaking op-ed reflect those of the author and not of Friends of Europe.
*This article first appeared on the Friends of Europe website and is reproduced with kind permission.
*The views expressed by the author of this article, Giles Merritt, are not necessarily those of The Bulrushes
