The OECD has not delivered on global tax reform – it’s time for corporations to pay their fair share

Yesterday the OECD announced that after 7 years it had failed to find a way to tax global tech giants who are making massive profits while the rest of us suffer under Covid

In the fallout from the financial crisis, the Organisation for Economic Cooperation and Development (OECD) was tasked in 2013 with stopping global corporations dodging taxes.

Yesterday we found out that, as the world suffers the consequences of the worst recession in nine decades, the OECD has not delivered and that corporations are still able to shift profits to tax havens.

Global tax revenues declined 11.5% between 2007 to 2009 and will probably fall even further in the COVID induced recession placing intense pressure on public budgets and making the OECD's failure to deliver even more tragic.

PSI has consistently argued that only by taxing global corporation on their global profits can we stop them from shifting massive amounts of money to tax havens and end the race to the bottom. We need a global tax body that can resist corporate interests and make corporate tax policy based on the public interest.

PSI General Secretary, Rosa Pavanelli, said

“Even the current weak proposals have not obtained agreement because the misplaced sense that national interest is served by protecting multinationals has prevailed over genuine, global public interest. The result is multinationals continue to dodge taxes that could help pay for public expenditure to support health, incomes and employment.”

Globally, tax avoidance diverts 40% of foreign profits to tax havens, according to ICRICT commissioner Gabriel Zucman . American multinationals alone havebeen estimated to cause the EU to lose nearly 25 billion euros in corporate taxes annually. You can explore the world map to see how much profit and tax revenue your country loses (or attracts).

IMF’s Fiscal Affairs Department estimates annual total corporate tax losses associated with profit shifting at more than $500bn, with $400bn for OECD member states and around $200bn for developing countries per annum. Africa is losing nearly $89bn a year in illicit financial flows equivalent to 3,7% of the continent’s GDP, amounting to more than it receives in development aid, a new United Nation study shows.

PSI's Assistant GS, Daniel Bertossa, has been monitoring the OECD process and said today:

“the process is unlikely to succeed as long as it continues to promote only marginal reform and excludes most countries from real equal participation, while allowing a few to protect ‘their’ multinationals at the expense of public services and economic recovery everywhere.”

PSI is a foundation member of the Independent Commission for the Reform of the International Corporate Taxation (ICRICT) that has proposed a set of comprehensive and fundamental reforms that incorporate principles of efficiency and fairness and a widely reported paper on Covid, sustainable economic recovery and international taxation.

Joseph Stiglitz, Professor at Columbia University and ICRICT commissioner said yesterday “The OECD proposals are not adequate, they represent the capture of this agenda by the multinational corporations and the countries that are closely allied with those multinational corporations. The old system of taxation is not fit for purpose. We must shift to a formulaic principle where you allocate profits in proportion to sales, employment, capital stock.

Jayati Ghosh, former Professor of economics at Jawaharlal Nehru University and ICRICT commissioner “Developing countries are facing existential threats from the health pandemic and climate change. Thus far, the global community has failed to enable governments in these countries to undertake the required increases in public spending. The most recent—and major—failure is of minimal international tax cooperation to ensure that multinationals pay their fair share of taxes, without shifting profits to low tax jurisdictions. Governments must now take action on their own”.

Developing countries rely relatively more on corporate tax income as a source of government revenues. Corporate tax represents 15% of total tax revenues in Africa and in Latin America, compared to 9% in OECD countries.

In the midst of a pandemic, countries cannot afford to wait.

Both ICRICT and PSI urged government to move unilaterally to introduce interim measures to ensure that profitable companies, in particular those in the tech sector, can contribute to a just recovery. Such unilateral measures can bring effective pressure to bear on the international community for genuinely fair, international tax reforms. It can also support greater revenue raising for as long as wider reforms are blocked by leading OECD members. Details can be found here.