OECD/ G20 Tax Deal: Too Little, Too Late

Today, after years of negotiations, G20 Finance Ministers are set to endorse a statement on the OECD-led Inclusive Framework for reforming international corporate taxation. Although these discussions had raised expectations for significant change, the outcome is a massive disappointment.

Ths deal will not stop corporate tax dodging or address the bias in the corporate tax system towards predominantly northern countries with large multinational corporations.

This deal can only be considered a first step. Immediate and additional measures by policy makers at all relevant levels must now be pursued.

PSI General Secretary Rosa Pavanelli said:

“Too many concessions have been given to low-tax countries at the expense of workers and public services. This is coming at a time when funding for decent work and public services are badly needed. If a nurse doing night shift on a COVID ward pays 25% tax, why can’t the wealthiest corporations who have profited from the pandemic?”

While the deal finally signals the end of political support for tax competition, it provides too many loopholes for tax havens and corporations and does little to provide revenue for countries in the global south as they fight COVID.

Pavanelli said:

“The admission that tax competition is harmful and tax co-operation is the only answer is long overdue. But the rate of 15% must be lifted to 25% as demanded by PSI and ICRICT for many years. This deal can only be celebrated if it is the basis for immediate and additional policy measures for fairer and stronger corporate tax regime based on taxation where economic activity takes place.”

The position reached makes significant last minute concessions to low tax countries, allowing them to exempt companies seeking to expand internationally from the principle of minimum rate domestic. It also appears that tax havens will be allowed to continue to operate until 2024, to the detriment of other countries who would not be allowed to “tax back” for a period of at least two years, despite the need to expand revenues to fund the covid recovery.

PSI has also expressed concerns about the ability of the deal to address the under-taxation of multinationals in a digitalizing economy. The Inclusive Framework final statement confirms the very limited ambition of the reform. Most corporate profits will continue to be governed by current transfer pricing rules, which are routinely circumvented by multinationals, in particular in the digital sector.

The deal also does not adequately address unitary taxation- the need for corporate profits to be taxed based on allocation factors representing all factors of production including employment (see PSI policy demands) .

The G20 mandated the OECD Inclusive Framework to address the tax challenges arising from the digitalisation of the economy.

It is now unfortunately clear that this mandate has not been fulfilled.

PSI calls upon policymakers at all relevant levels to take urgent action – at the domestic and international level - to address the gaps and fund quality public services.

Governments must:

  • Implement a minimum rate of at least 25%, without exception. Source countries must urgently commit to “tax back” multinationals that are resident in tax havens.

  • Introduce domestic measures designed to address the weaknesses of transfer pricing rules and to raise fair and progressive taxation from undertaxed companies.

  • Ensure public access to key data in country-by-country reporting.

Trade unions will continue campaigning for real fundamental reform of the existing corporate tax rules at the multilateral level.

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