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For Global Tax Reform, the Devil Is in the Details

Developing countries must decide between two different subject-to-tax rules, one proposed by the OECD and the other by the United Nations. The UN version is the better alternative, because it would be easier to administer and, more importantly, would enable these countries to generate more revenue.

NEW DELHI – While the technical details of international agreements may seem arcane or even trivial, they often commit governments to policies that have major economic consequences. This is especially true for low- and middle-income countries, which have long been on the receiving end of unfair treaties.

International tax agreements are a case in point. Bilateral tax treaties are rife with inequalities. They tend to be more advantageous for the home countries of multinational companies (MNCs), diverting much-needed resources from developing to developed countries.

Multilateral agreements are not much better. The OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS), for example, was supposed to ensure that MNCs could be taxed in countries where they operate (as opposed to shifting profits to low-tax jurisdictions). After nearly eight years of tedious negotiations, however, the process has yielded only modest results: a global minimum corporate tax rate of 15%, well below that of most countries. According to the South Centre, developing economies will derive few gains from this global minimum tax, which will benefit mainly tax havens.