Amidst the multiple crises in health, the economy, and the climate, peoples in Asia continue to bear the social and economic costs of fundamental flaws in national and international tax systems. Illicit financial flows continue to strip away potential revenues critical for financing health and social services most needed for our survival, safety, healing and rebuilding. Tax competition, wide-ranging corporate tax incentives, and barriers to taxation of extractives and digital services remain rife in the region. The escalating race to the bottom in corporate income tax regimes combined with corruption, weak transparency frameworks and regulatory mechanisms have enabled multinational corporations and domestic elites to siphon hundreds of billions out of our countries.
The COVID-19 pandemic and its impacts present a historical opportunity to reform global corporate taxation and transform our tax systems to make them more responsive to the needs of people and the planet. It is tragic that the solutions offered by the world’s elite countries only serve to reinforce inequalities in the global tax regime that have long excluded the voice and interests of developing countries and peoples in the Global South.
Finance leaders of G20, a forum among some of the world’s richest countries, recently endorsed the OECD’s Two-Pillar “Solution” under its Inclusive Framework on Base Erosion and Profit-Shifting (BEPS). The OECD/G20 tax deal rests on two pillars: Pillar One is intended to allocate taxing rights on “excess and non-routine” profits to countries where large multinational corporations locate and profit from sales, while Pillar Two stands on an unambitious proposal of setting the global minimum corporate tax rate
to a meager 15%.
Peppered with rhetoric about strengthening domestic resource mobilization in the Global South, the two-pillar approach is nothing more than an illusory fix that undermines our long-standing demands for a just and democratic transformation of the global tax policy architecture.
The extremely narrow base and the unjust allocation of revenues in Pillar One robs developing countries of our sovereign power to tax multinational corporations within our borders. Hidden beneath a complex technical facade is a deeply regressive arrangement that only covers the biggest 100 multinational corporations and their “residual profit margins”. The exceptionally high threshold set by Pillar One lets loose a vast majority of MNCs shifting profits out of developing countries. Furthermore, by privileging countries where MNCs are headquartered and the taxation of profit margins from sales, the tax deal precludes the taxation on profits from employment and assets which are central to value extraction of MNCs from the Global South. It also creates an abstract and unrealistic separation between routine and residual profits, enabling multinational corporations to take advantage of loose regulations on transfer pricing for a lion’s share of profits generated globally.
The proposed global minimum corporate tax rate of 15% gravely falls short of the objective to raise revenues in developing countries. The UN Economic Commission for Asia and the Pacific (UN ESCAP) proposed that developing countries in Asia will need public investments amounting to USD 1.5 trillion every year to achieve the Sustainable Development Goals for Achieving the 2030 Agenda. The OECD proudly declared that their proposed rate of 15% is set to generate USD 150 billion in annual additional revenues — this is a measly figure beside an estimated USD 760 billion in additional revenues from a 25% global minimum effective tax rate. Noting the recommendation of the United Nations High-Level Panel on Financial Accountability, Transparency and Integrity (UN FACTI), setting a global minimum tax rate lower than 25-30% will fail to make any significant impacts on revenue generation in the Global South.
A deal anchored on a global corporate minimum tax rate of 15% sets a dangerous precedent for a global race to the minimum. Justified as measures to promote “economic recovery”, several laws have been passed by governments in Asia since the beginning of the pandemic to further reduce baseline corporate income tax rates under the pretext of stimulating the economy, but in reality, keeping pace with declining global and regional averages. Pillar Two will only accelerate this process under intensified pressure from domestic and multinational business lobbies. By setting a global minimum precipitously close
to nominal rates of tax havens, the G7 and OECD tax deal triggers an unambiguous policy signal to the rest of the world that lowering corporate income taxes to 15% is not only acceptable but will be the gold standard.
Negotiations on global tax agreements have no place in the undemocratic and unequal platforms of the G7, the G20, and the OECD. Because membership in these informal arrangements is decided entirely by countries’ gross national incomes, it is not surprising that the benefits of the two-pillar proposal are highly skewed towards the interests of the Global North.
Rich countries and legislative lobbies for multinational corporations are attempting to expedite the ratification of the agreement by governments in order to forestall demands for higher global minimum tax rates and a just allocation of taxing rights. This underlines the urgent responsibility of governments in the Global South to assert equal rights to decide on global tax rules in an intergovernmental platform under the auspices of the United Nations.
As peoples and organizations committed to the transparent, accountable, and just restructuring of tax systems, we call on civil society organizations and governments in Asia to mount a strong resistance against the growing pressures by the G7 and OECD
for the Global South to adopt the flawed, unequal, and regressive two-pillar approach.
We call on governments in Asia to:
REJECT the OECD/G20 global tax deal and other initiatives that reinforce inequalities in decision-making around global tax rules or serve only the interests of multinational corporations and a few elite countries
WORK FOR progressive, transparent, just, equitable and democratic tax systems and policies
PUSH TOWARDS the formation of a genuinely inclusive, democratic, and transparent intergovernmental mechanism Tax Body under the auspices of the UN.