How to Secure a Fairer Global Tax Deal
The recent agreement by 131 countries to reform international corporate taxation is not the end of the road. But to bring about a more equitable outcome, developing countries must now push for a higher global minimum tax rate and a bigger reallocation of taxing rights, and refuse mandatory arbitration.
NEW YORK/NOTTINGHAM – The July 1 agreement by 131 countries to establish a global minimum tax rate of at least 15% for multinational corporations (MNCs) and reallocate taxing rights is a step forward. But the deal as it stands represents another missed opportunity to deliver an equitable outcome for developing countries.
It is good that multilateral efforts to reform global taxation are back in favor. This is largely because US President Joe Biden’s administration wants to end the race to the bottom in corporate tax rates – a contest that has benefited only tax havens. In most cases, lower tax rates not only failed to attract new investment to countries, but also deprived governments of the funds they need for social objectives and infrastructure improvements.
But the new tax deal reflects the imbalances in global power relations. G7 countries put the agreement they reached last month to the 139 countries that are part of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. Faced with a take-it-or-leave-it choice, most developing countries agreed, despite significant reservations. But a handful – including Nigeria, Kenya, and Sri Lanka – did not sign up. And even some of those who did made it clear that the negotiations were not over.