In a new report published today, ICRICT evaluates the forthcoming OECD solution to tax multinationals and calls for a fair and comprehensive reform that would tax multinationals as single firms, “using formulary apportionment based on objective factors, together with a minimum effective corporate tax rate of 25%”.
The Global Alliance for Tax Justice, member of the ICRICT steering group, has been critical of OECD-led processes to set rules and standards for international taxation because the OECD has no legitimate mandate for such a role. Therefore, the Global Alliance for Tax Justice (GATJ) warmly welcomes ICRICT’s report and declarations.
GATJ’s Executive Coordinator, Dereje Alemayehu, explains: “ICRICT exposes in very clear terms that the “solutions” OECD is pushing would leave the status quo unchanged. ICRICT also questions the legitimacy and genuinely inclusive nature of the institutional framework within which this OECD-led process is unfolding”.
“A significant challenge to resource availability – and to the prospects for sustainable development – stems from the iniquities of international tax rules, ICRICT explains, as 40% of overseas profits made by multinationals around the world are transferred to tax havens. Low income countries are the most affected since they have limited alternatives for raising revenue.
Faced with the scale of this problem, the OECD will launch its proposal to reform the way multinationals are tax (with a final agreement to be found by 2020) next Wednesday. The pressure to reach a consensus means the risk of water down solutions is high”, ICRICT continues in its report titled “International Corporate Tax Reform: Towards a fair and comprehensive solution”:
- “Any reform actions taken now should be the first step towards taxing multinational as single and unified firms, using formulary apportionment based upon objective factors, and result in a system that is simpler, easier to administer, more efficient and more equitable.
- We reject the likely proposal of splitting “routine” and “residual” global profits of multinationals and making only a fraction of the latter subject to formulary apportionment. This will keep the existing dysfunctional rules in place to determine how the majority of multinationals profits are taxed and result in little reallocation of taxing rights.
- We are concerned about the likelihood that this reform is going to benefit OECD countries first and foremost, as the proposal results in a limited shift of taxing rights, and only to market jurisdictions. An equitable distribution of taxing rights can only be achieved through a balanced formula which includes supply and demand factors, as allocation based on sales tend to advantage advanced economies who consume more whilst developing countries significantly benefit if employment is included in any allocation formula.
- We believe a global minimum effective tax should be set at 25%, as we are fully aware that what is now set as a global minimum may become in the future the global
“The credibility of OECD as the appropriate body to continue to lead this work remains in question. Much still needs to be done to ensure effective participation and representation of developing countries. (…) A fair and comprehensive reform should result in an international tax system that is simpler, easier to administer, more efficient and more equitable”, ICRICT states.
“The ICRICT declaration clearly shows that the OECD is trying to push through “solutions” that will perpetuate tax dodging, as concludes Dereje Alemayehu, also a member of ICRICT’s steering committee. “This amounts to obstruction of alternative policy measures and legitimate institutional arrangements for effective and fundamental solutions”, Alemayehu analyses.
You can read ICRICT’s full report here.
You can also consult ICRICT’s very helpful and pedagogical media advisory here.
Image cover source: “Global inequalities in taxing rights: An early evaluation of the OECD tax reform proposals” by Cobham, Faccio, Fitzgerald (2019).