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U.S. President Joe Biden’s plan to reform global corporate taxation will do little to help countries that need more tax revenue the most, according to developing economies that are pushing for more power over multinationals.
Washington’s ambitious proposal would tax 100 of the largest companies in the world for profits made in countries where they have little or no physical presence but earn substantial income and would introduce a global minimum tax rate, to try to end what he called “career funds ”where companies channel profits through low-tax jurisdictions.
But companies would pay most of their taxes in the country where they are headquartered, even if their profits (and in many cases the labor and raw materials used) come from developing countries, they have reported. in the Financial Times senior diplomats and lobbyists.
They are also concerned that many developing countries are not involved in the negotiations on the OECD proposal and fear that the eventual agreement is unlikely to reflect their interests.
Mathew Gbonjubola, Nigeria’s ambassador to the OECD, said: “What I understand, with the … The rules that are currently being developed are that developing countries can become almost nothing.”
He supported US and OECD efforts to get the world’s largest companies to get there pay more taxes worldwide. “The less tax incentives are offered by developing countries, the more they are able to retain the revenue needed for their development and the less they depend on loans or aid,” he said.
But he warned that “it is logical and moral that countries of origin, developed or developing, have the right to refuse before [tax revenue] happens to [companies’] countries of residence ”.
Gbonjubola added that the US “has not provided the economic reasoning” just to target 100 companies. This approach is a reduction of the OECD proposals, which would have covered thousands of companies.
“The most important point of difference between advanced economies and developing countries is the threshold that determines how many companies are included,” said Sybel Galván, Mexico’s ambassador to the OECD.
Rajat Bansal, a member of the UN Committee of Experts on International Tax Cooperation, said setting a threshold that would only capture larger companies would mean that “ultimately, some of the potential taxpayers would not be covered”.
Critics also say the amount to be taxed under the U.S. plan is too small, as it is likely to be less than one-fifth of corporate profits. Ross Robertson, BDO’s international tax partner, said: “If the global pot is not enough … it does not provide a fair reward for outside companies [developing countries’] territories that make profits [their] economies “.
The African Tax Administration Forum, which advises governments on the continent, has called for a tiered approach that would set lower thresholds for smaller economies. “We don’t believe a single threshold for all economies is fair,” he said.
The ATAF is also concerned that in long and complex negotiations the poorest countries cannot fight for their rights. “Even though they have a seat at the table, it’s hard for them to keep up. . . There may not be a high level of political awareness in Africa on this issue and on its importance [the proposal] is.”
Several major developing economies are participating in a rival effort at the UN to develop an international tax regime, which would be specifically targeted at digital service companies. The measure is driven by the tightening of small amounts of taxes paid by U.S. tech giants in many countries where they make big profits.
The plan would grant countries the right to tax the revenues of digital companies based on where the revenue is generated, rather than just where the company resides. Argentina, India, Kenya and Nigeria have recently introduced digital taxes and several African countries are considering it, according to the ATAF.
The UN proposal, which has been defended by India and Argentina, was approved by the UN tax committee last month. Other developing countries, such as Ecuador, Ghana, Liberia, Nigeria, Vietnam and Zambia, have supported it.
The model is not binding and can only be enacted in bilateral agreements if the participating countries are parties to it, but the timetable is problematic for the OECD.
“There seems to be strange competition between the UN and the OECD,” said Tove Maria Ryding, head of policy and defense at the European Debt and Development Network. “The UN is studying the development of taxes on digital services and the OECD is trying to get rid of them” in favor of a regime that applies to all industries.
Christian Hallum, a senior tax and mining specialist at Oxfam Ibis in Copenhagen, said for some developing countries that the feeling of being marginalized in OECD talks could make them reluctant to give up their plans to lead. to technology companies, which could lead to a confrontation. “There is a real risk that if rich countries dictate the outcome of the [OECD] process, that’s what we’ll see. “
Mexican Galván said OECD negotiations were “difficult but constructive” and that several major developing economies were “definitely in favor of having one thing in common.” [tax] March “.
But others have warned that the US proposal runs the risk of losing legitimacy.
“You can call the rules global, but if decision-making is not really global, why would countries that have not been involved in making the rules sign up?” said Ryding. “The world’s poorest countries are once again at risk of losing when the global tax pie is split, even though they need more tax revenue than anyone else.”
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