Not all deals are made equal, including the OECD’s tax agreement

If we have learned anything from last week’s Pandora Papers it is that we must scrap tax havens and establish an international tax framework in which all countries have a say in shaping the rules.

Friday’s tax deal at the Organization for Economic Cooperation and Development (OECD) offers thin gruel, despite some progress.  Under the deal multinational firms can be taxed where they generate profit, instead of where they are located, and a minimum corporate tax rate was set at 15%.

Of great concern is that the deal offers nothing for the Global South—countries suffering most from corporations that game the international tax system while facing up to a multibillion-dollar financing gap and rising inequality in the wake of the pandemic.

United States Treasury Secretary Janet Yellen may insist that the deal “will stop the four-decade long race to the bottom of corporate taxation,” but this is a tax agreement designed by wealthy countries that will benefit wealthy countries.  Excluded from the OECD, developing countries will not profit from the OECD agreement.

What’s more, the deal only covers firms with global turnover above $20 billion and profitability of over 10%, which means the likes of Amazon are excluded from the new taxation regime. 

The provisions on turnover will benefit countries with a large consumer base, and those on profits will benefit countries with large corporate headquarters.

This is yet another reminder of the need for global tax policies to be entrusted to a new United Nations tax body on which developing countries are represented.  The OECD may include many members with good intentions, but its 38 members ultimately include no developing countries.