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International Taxation and Global Development

NEW YORK – When it comes to funding development, taxes are perhaps the most critical piece of the puzzle. But the system of taxing global profits is broken – and it is exacerbating inequality both within and across countries. If the world is to make progress toward its goals of eradicating poverty and stemming rising inequality, the system must be reformed.

The biggest problem with the current system is that, by taxing the subsidiaries of multinational corporations as separate entities, it provides plenty of room for global companies to dodge their tax obligations. The reform efforts by the OECD, acting at the request of the G-20, represent welcome attempts to address so-called “base erosion and profit shifting” (BEPS), but they do not go far enough.

The most significant deliverable of the OECD’s BEPS initiative lies in its new country-by-country reporting requirements, which force multinationals to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid. They must also provide information about which entities do business in each jurisdiction and the economic activities in which they engage.

But such reporting will apply only to entities with revenues above €750 million ($845 million) and will not be made public. Furthermore, countries have to meet certain conditions to access the information – a structure that will not benefit most developing countries.