World leaders endorsed a new tax package at the G20 summit in Rome last weekend. The package should be an important step in the fight against tax avoidance, but anyone who delves deeper into the measures will see a weak package that redistributes too little tax, restricts tax havens and forces countries to abandon more effective national measures.
This cocktail of shortcomings hits countries in the global south particularly hard. Developing countries therefore want more influence to make fair agreements. But the big question is: do OECD countries allow this group of vulnerable countries sufficient tax revenues?
With the tax deal concluded, there is no real meaningful redistribution of tax revenue. The system favours the countries where international companies have their head offices and ensures that the countries where the companies sell their products are still not able to tax enough.
The acclaimed international minimum profit tax also has a downside. In compromise with tax havens, a profit tax rate of 15% has been agreed. That rate is much lower than the OECD average of 23% which is about half of the approximately 29% of income tax that the poorest group of developing countries have, on average, uses. You can sense that such a low minimum rate will put pressure on developing countries to reduce the tax rate. Not to mention the exceptions that companies will get, which will reduce their effective tax burden to below 15%.
It is harsh that world leaders praise a package that can increase inequality between the Western world and the global south. It is presented as an international agreement, but above all it safeguards the interests of the OECD members. Despite an attempt by the OECD to involve a larger group of countries, it has not been possible to engage developing countries and give them an equal voice.
Of the 193 countries that are members of the United Nations, only 119 have signed the OECD package. The package received a lot of criticism from the global south and a group of middle-income countries that had joined the negotiations, including Nigeria, Kenya, Pakistan and Sri Lanka, refused to sign the outcome. Of the group of 46 least developed countries, more than 75% did not participate in the negotiations and have therefore not signed the agreement.
Despite the clear and loud criticism of the package from developing countries, experts and civil society organisations, the OECD pushed it through. This is even the second package of international tax measures in five years that does not take sufficient account of the needs of developing countries.
This is despite the fact that there has been a debate since 2001 that it is more just to organise international tax reforms through the United Nations, so that more democratic decision-making can take place. A coalition of 134 developing countries, united in the G77, have now tabled a proposal for a global tax body under the United Nations flag. The G77 has submitted this proposal more often over the past two decades, but it has been blocked by the OECD, of which the Netherlands is a part.
The big question is therefore: will the OECD, a group of 38 rich countries, continue to act in its own interest and ignore the legitimate desire of developing countries for democratic decision-making?