By Jose Antonio Ocampo for Project Syndicate on 29 April 2024
Given the many loopholes and opportunities for tax arbitrage in today’s global economy, much closer international cooperation will be needed to ensure that multinational corporations and the world’s wealthiest people pay their fair share. Negotiations for this purpose are now underway, but developed countries must get on board.
BOGOTÁ – This year’s Spring Meetings of the World Bank and the International Monetary Fund, and the follow-up United Nations Forum on Financing for Development, have put international tax cooperation high on the global agenda once again. Brazil has declared that it will use its G20 presidency to advance the issue (whereas last year’s New Delhi G20 summit made no mention of it), and the second phase of UN negotiations toward a global tax convention is now underway.
The earlier OECD/G20 Inclusive Framework helped advance this issue in two ways: it stipulated that very large multinational corporations should pay taxes in all the places where they operate (Pillar One of the agreement); and it held there should be a minimum 15% global corporate-income-tax rate (Pillar Two). But implementation has been slow, and even if most parties to the agreement sign the multilateral treaty necessary for Pillar One, the United States is unlikely to secure the two-thirds Senate majority required for ratification. Given that many of the world’s largest tech firms are headquartered in the US, the deal would be written in water, and the global digital economy would remain under-taxed.
Moreover, the benefits of the Inclusive Framework are expected to accrue mainly to developed countries, which is why the African Union subsequently pushed for negotiations toward a global tax convention at the UN General Assembly. The UNGA resolution was adopted last November, albeit along a sharp North-South divide, with most developed countries voting against it (Norway and Iceland abstained) and almost all developing countries voting in favor.