International Tax Reform - No Solution

Proposed reforms of international tax rules by the Organisation for Economic Co-operation and Development will only claw back 5% of profits, and could end up worsening global inequality, analysis by tax campaigners has found. The OECD plans would focus on the multinational firms’ sales, rather than also incorporating where employees are based, as campaigners prefer.

Researchers said the OECD and IMF plans would “give greater taxing rights to richer countries at the end of the sales process than to lower-income countries at the start of the process”. For instance, a multinational shoemaker would be taxed where it sold its brand name running shoes and not where the shoes were stitched together, it said.

A study by the Tax Justice Network found that the OECD proposals, designed to limit the scope of multinationals to avoid tax, could end up shrinking the tax paid in poorer countries.

Researchers found that the additional tax recovered from corporate tax havens would mainly benefit the richest countries.

While the poorer countries often lose out the most through tax abuses, the OECD reforms could end up seeing their tax bases shrink by 3%, researchers warned, while about 80% of the taxes clawed back are likely to be redistributed in high income countries.

The reforms have been in gestation since 2015, including proposals specifically designed to address how online tech giants such as Amazon, Google and Facebook are taxed. In May, 129 countries signed up to the OECD’s “road map for resolving the tax challenges arising from the digitalisation of the economy”, working towards new rules by the end of 2020. The OECD estimated the annual tax loss at $240bn, but according to Tax Justice the figure is likely to be double that, at more than $500bn.

The study compared the outline OECD proposals with two alternatives, one from tax justice campaigners themselves and another from the International Monetary Fund (IMF). It found the OECD approach was by far the weakest in tackling tax abuse, resulting in a mere 5% drop in profits registered in corporate tax havens – including Ireland, Jersey, Luxembourg, and Switzerland – compared to a 43% and 60% reduction under the IMF and campaigners’ proposals respectively. The latter scheme would also be far more beneficial to non-OECD members, including the G24 and G77.

https://www.theguardian.com/business/2019/oct/06/oecd-tax-reform-plans-inequality-analysis