Oct 08, 2021
A global tax deal reached Friday by 136 countries was widely hailed as a "historic" step toward a more just and equitable economic order.
But global humanitarian groups and policy experts warned that a closer look at the agreement reveals it to be a "shameful and dangerous capitulation" to corporate tax dodgers and the countries that enable them.
"This deal is an unacceptable injustice. It needs a complete overhaul."
"It is a mockery of fairness that robs pandemic-ravaged developing countries of badly needed revenue for hospitals and teachers and better jobs," Susana Ruiz, tax policy lead at Oxfam International, said in a scathing statement. "Calling this deal 'historic' is hypocritical and does not hold up to even the most minor scrutiny."
Announced just days after the massive "Pandora Papers" leak prompted renewed scrutiny of tax havens worldwide--including in the United States--the two-pillar deal proposes a 15% global minimum corporate tax rate, a measure designed to prevent businesses from shirking their obligations by moving profits to low-tax countries.
Experts have repeatedly warned in recent months that a 15% rate would be far too low to meaningfully crack down on corporate tax dodging, which costs governments hundreds of billions of dollars a year in revenue.
The other pillar of the deal--which is the culmination of years of negotiations--aims to ensure that multinational tech giants such as Amazon, Google, and Facebook pay taxes where their products and services are sold, not just where they've established a physical presence.
To take effect, the tax agreement must be approved by the legislatures of the 136 signatories--a tall task around the world, including in the United States, where Congress is narrowly divided. Supporters of the deal set 2023 as the target year for the tax changes to take effect.
"While the agreement would likely survive the failure of a small economy to pass new laws," the Wall Street Journalnoted, "it would be greatly weakened if a large economy--such as the U.S.--were to fail."
U.S. Treasury Secretary Janet Yellen, who helped jump-start stalled negotiations over the global tax framework, said in a statement Friday that the new agreement represents "a once-in-a-generation accomplishment for economic diplomacy."
"Everyone else has been left out--especially lower-income countries which lose the greatest share of their current tax revenues to corporate tax abuse."
Tax justice campaigners, however, argued that the deal's numerous loopholes and last-minute concessions granted to win the support of holdout countries--such as low-tax Ireland--threaten to render the framework toothless.
"At the last minute, a colossal 10-year grace period was slapped onto the global corporate tax of 15%," Ruiz noted, referring to a provision secured by Hungary.
As the New York Timesreported: "Hungary has long offered a 9% corporate tax rate to lure investment. It wrested an exemption that would let multinationals reduce profits subject to the minimum tax for a transition period of 10 years, rather than the five years originally proposed."
To appease Ireland, a prominent tax haven, negotiators also agreed to drop the "at least" from the proposed minimum corporate tax rate of "at least 15%."
"This deal is an unacceptable injustice," said Ruiz. "It needs a complete overhaul."
The Organization for Economic Cooperation and Development (OECD) and the Group of 20, she added, "must bring fairness and ambition back to the table and deliver a tax plan that won't leave the rest of the world to pick up their crumbs and scraps."
Alex Cobham, chief executive of the Tax Justice Network, echoed Ruiz's assessment, arguing that "the negotiations have failed to deliver for the people of the world who continue to face the pandemic with public health systems that are badly underfunded."
"It's no wonder that Ireland and other havens have embraced the deal, especially after obtaining various concessions," said Cobham. "As it stands, it will neither curb profit shifting effectively, nor provide substantial revenues to more than a handful of OECD member countries. Everyone else has been left out--especially lower-income countries which lose the greatest share of their current tax revenues to corporate tax abuse."
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