While much of the world still suffers from the pandemic, developing countries urgently need an economic boost that they will not get from the proposed global minimum tax.

The Covid-19 has the potential for increasing inequalities in almost all countries at once. The wealth of billionaires is reaching astronomical levels. Threats of austerity. Domestic fiscal crises in developing countries are accelerating, amid already the worst shortage of health workers in history and crippling debt burden.

It is against this backdrop of unprecedented crises that negotiations on a long-awaited global agreement on corporate taxation, which could recover essential revenues for countries around the world, assume extraordinary importance.

The G7 group of countries agreed last month to support a global tax deal, which the “Inclusive Framework” (IF) convened by the OECD approved last week. Now all eyes are on the G20 savings group, which will decide in Venice this week whether or not to support the agreement.

The stakes could not be higher. The G7 and the OECD were quick to declare their historic efforts. It’s anything but. There are two fundamental problems with their proposal.

The first is their proposed 15% minimum corporate tax rate. It is just way too low. It’s based on rates in high-profile corporate tax havens such as Ireland and Singapore, effectively legitimizing and codifying some of the worst behaviors. The reforms were supposed to end a decades-long “race to the bottom” on tax rates, but now risk accelerating that race and making 15% the new normal. The G7 supported the 15% rate, despite efforts by the United States to reach a rate of 21% and a much higher rate being needed to ensure that businesses pay their fair share to tackle inequality.

The second problem, just as important, is who will benefit from this new income. It will not be the countries where multinationals produce or make their sales and profits, including in their booming middle-income markets, but primarily the G7 and EU countries where they are headquartered.

This agreement is hardly to celebrate. Martín Guzmán, Minister of Finance of Argentina, in particular member of the G20, criticized the proposal, just like some African countries. This is bad news for tax havens, but it will fail to raise the funds that developing countries urgently need to save lives and ensure a fair and inclusive economic recovery after Covid-19.

The deal the G7 and the OECD want is a deal in which the G7 and the EU will bring back two-thirds of the new cash that a new global minimum tax of 15% will bring back. The world’s poorest countries are expected to receive less than 3% although it is home to over a third of the world’s population.

If you are a street vendor in Kenya, a nurse in Bangladesh, or a small business on your knees, then this tax offer is not for you.

Let’s call it what it is: a grab of money from the rich countries; the one who Professor Thomas Piketty calls for the “formalization of a real fraud license for the most powerful economic players”.

Already, the OECD agreement is seen by some as an excuse to call for lower domestic corporate tax rates, whether in large company in Australia to the media in Denmark ― risking another race to the bottom.

We still need a reform that is fair, redistributive and generates sufficient and substantial additional income for developing countries.

Deciding whether or not to approve the OECD proposal was a false choice: we just need a better deal. The cost of an error is too high: tax evasion by multinationals leads to overall revenue losses of at least $ 240 billion every year.

If we want to overcome extraordinary inequalities, we should talk about what we need to achieve. In the aftermath of World War II, executives such as Franklin D. Roosevelt ensured that companies paid between 40% and 50% of tax rates, which remained for decades. This is the stated ambition that we need to be able to truly drive investment in universal services and protections, in our nurses and teachers, and in small businesses around the world.

The G20 is due to close the deal this week. Succumbing to G7 pressure would represent a colonial-style victory for the wealthiest nations, dictating that most nations of the world accept a deal contrary to their interests. We need a minimum tax rate that reflects the top, not a rate that reflects the bottom.

The deal on the table should at least reflect recommendations from the Independent Commission for the Reform of International Business Taxation (ICRICT), which called for a minimum tax rate of 25%.

This would raise nearly $ 17 billion more per year for the world’s poorest countries than a rate of 15%, enough to immunize 80% of their population.

Revenues would double if the City of London and the regulated financial sectors were not excluded.

And big violators like Amazon shouldn’t be left behind, and countries should be allowed to move forward with unilateral action to tax companies not covered by the tax deal.

Even that would be far from historic, but it would show that leaders are determined to end the race to the bottom and begin the journey to the top.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Author Info

Gabriela Bucher is Executive Director of Oxfam International.

Bloomberg Tax Insights articles are written by seasoned practitioners, academics, and policy experts who discuss current tax developments and issues. To contribute, please contact us at [email protected].



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