OECD Collapse Risks Tax Revenue Loss to US Companies
The OECD recently implemented a new “side-by-side system,” which has raised significant concerns among various nations regarding tax revenue loss. The system specifically exempts the United States from certain provisions of the OECD’s Pillar 2 tax reforms.
Impact on Global Tax Revenue
According to Alex Cobham, the chief executive of the Tax Justice Network, this move undermines the ability of countries, including those in the EU and the UK, to tax businesses within their jurisdictions accurately. Cobham noted that countries like France, Germany, and the UK are already facing substantial losses due to tax evasion by US corporations, amounting to:
- France: $14 billion annually
- Germany: $16 billion annually
- The UK: $9 billion annually
Lack of Transparency from OECD
Cobham criticized the OECD for not providing any quantitative data about the anticipated tax losses due to this new agreement. He emphasized that this lack of transparency could indicate either a lack of willingness to divulge information to taxpayers or an oversight in estimating the potential financial impact.
US Multinationals and Profit Shifting
US multinationals are increasingly shifting profits, now doing so at twice the rate compared to 2016. These corporations account for nearly one-third of the losses that countries face due to corporate tax abuse. Notably, this trend has led to significant tax losses not only for other nations but also for the US itself.
Global Tax Negotiations Shifting to the UN
The limitations of the OECD’s framework prompted non-OECD countries to initiate their tax negotiations through the United Nations last year. These discussions have reportedly made more progress in a single year than the decade’s worth of negotiations that took place at the OECD.
Modernizing Global Tax Rules
One of the focal points in these discussions is the shift from a “pay-where-you-say” model to a “pay-where-you-play” approach. This would adjust taxation to where multinational companies conduct real business, potentially rendering tax havens ineffective.
| Tax Model | Description |
|---|---|
| Pay-Where-You-Say | Taxes companies based on where profits are declared, often in tax havens. |
| Pay-Where-You-Play | Taxes companies where they operate and generate revenue, ensuring fair allocation across countries. |
Call for Government Accountability
In light of the recent OECD developments, Cobham urges governments to clarify how much tax revenue is being forfeited. If countries genuinely opposed the changes, they should publicly express their dissent.
Future of Global Tax Compliance
The ongoing discussions at the UN mark a crucial moment in the pursuit of an equitable global tax system. These negotiations aim to challenge the established norms that have favored multinational corporations and tax avoidance for too long.
