The GloBE Rules: Challenges for Developing Countries and Smart Policy Options to Protect Their Tax Base
By Emmanuel Eze, Sol Picciotto, Muhammad Ashfaq Ahmed, Abdul Muheet Chowdhary, Bob Michel and Tommaso Faccio
The OECD global minimum tax of 15%, known as the Global Anti-Base Erosion (GloBE) Rules, have meant that developing countries need to consider what policy responses to take to ensure they collect the minimum tax and not cede it to developed countries. One option being promoted by the OECD is the “Qualified Domestic Minimum Top Up Tax” (QDMTT), with the claim that it will help developing countries collect the minimum tax of 15%. This Policy Brief points out that under the QDMTT MNEs can still pay zero taxes, it does not guarantee tax collection, it is complex to administer, it curtails national sovereignty in the form of the “peer review” mechanism and it is relevant mainly for tax havens which are destinations of profit shifting. The Brief then outlines policy options relevant for developing countries, namely Alternative Minimum Taxes (AMTs) and reform of tax incentives.
Hacia una Agencia Latinoamericana y del Caribe de Medicamentos (AMLAC)
Por Germán Velásquez
El 26 de abril de 2023 en Acapulco, México, las Autoridades Reguladoras de Medicamentos de Colombia (INVIMA), Cuba (CECMED) y México (COFEPRIS) firmaron la “Declaración de Acapulco” para la creación de la Agencia Latinoamericana y del Caribe de Regulación de Medicamentos y Dispositivos Médicos (AMLAC). Esta declaración fué confirmada en Bogotá, Colombia el 16 de junio de 2023 en una reunión titulada “Convergencia regulatoria” por los responsables de las agencias reguladoras de medicamentos de Argentina, Brasil, Chile, Colombia, Cuba y México que acordaron la creación progresiva de una Agencia Latinoamericana y del Caribe de Medicamentos -AMLAC-.
La AMLAC fué creada para contribuir a la integración regional a través de la armonización y convergencia en materia de regulación sanitaria, la creación de un mercado regional de medicamentos en busca del acceso a medicamentos y dispositivos médicos seguros, eficaces y de calidad.
COVID-19 impacted humanity in many ways and one such impact is wide acceptance of the concept of Work From Home (WFH) by the corporate sector. Previously, WFH did exist in some countries, perhaps at a much smaller scale, but compulsions of COVID-19 have made WFH a new normal. This new normal also creates new tax challenges for the Multinational Enterprises (MNEs). Does the employee create a taxable presence in the countries where they are working remotely through a ”permanent establishment” and if yes what are the profits attributable to such permanent establishment?
The existing treaty provisions are likely to result in widespread litigation on these issues. It is desirable that a new provision is introduced in the tax treaties to tackle these issues. The suggested remote worker permanent establishment provision adopts a very simple measurable threshold for determination of permanent establishment and also attempts to balance taxing rights of the country of source as well as residence. A simple standardised approach could be adopted for determining the profits attributable to such permanent establishment.
Assessing the State of Play in the WHO Pandemic Instrument Negotiations
By Viviana Muñoz Tellez
This Policy Brief discusses the state of play of the negotiations of the pandemic instrument at the World Health Organization. The Intergovernmental Negotiating Body (INB) is increasing its meetings as the target deadline for completion in the first half of 2024 draws closer. To advance, the political will needs to be scaled up in the next months. The expectations should not be lowered to focus on the lowest common denominator. Real progress needs to be made in priority areas of concern for developing countries to keep momentum.
Towards A Latin American and Caribbean Medicines Agency (AMLAC)
By Germán Velásquez
On 26 April 2023 in Acapulco, Mexico, the Medicines Regulatory Authorities of Colombia (INVIMA), Cuba (CECMED) and Mexico (COFEPRIS) signed the “Declaration of Acapulco” for the creation of the Latin American and Caribbean Medicines and Medical Devices Regulatory Agency (AMLAC). This declaration was confirmed in Bogota, Colombia on 16 June 2023 in a meeting called “Regulatory convergence” by the heads of the medicines regulatory agencies of Argentina, Brazil, Chile, Colombia, Cuba and Mexico who agreed on the progressive creation of a Latin American and Caribbean Medicines Agency (AMLAC).
AMLAC was created to contribute to regional integration through harmonisation and convergence in health regulation, the creation of a regional medicines market in pursuit of access to safe, effective and quality medicines and medical devices.
Taxation of Digital Services: what hope for the African States?
By ADJEYI Kodzo Senyo, KOUEVI Tsotso and AMAGLO Kokou Essegbe
Globalization makes it necessary to adapt multinational taxation by taking into account the place of use or consumption of goods and services. “Pillar 1” of the OECD aims to allow States in which multinationals market products or services, or collect data and content from users, to benefit from a portion of their residual consolidated worldwide profit. Since residual profit is a function of the turnover and profit achieved in the jurisdiction, this solution can only be an advantage if, beyond the rules of fair taxation, efforts are made to promote the use of digital services. Internet access is one of the levers that can increase the consumption of digital services. The current situation in Africa according to statistics published by the International Telecommunication Union (ITU) shows low rates of internet access compared to other continents.
Strengthening efforts towards fulfilling the human right to food and the right to clean, safe and healthy environment
By Danish and Daniel Uribe
In the face of the unprecedented global crises that the world is currently facing, upholding and fulfilling the human right to food and a clean, safe and healthy environment have become critically important. The Human Rights Council (HRC) adopted two important resolutions on these issues in its 52nd Session, held from 27 February to 04 April 2023. The present policy brief discusses the implications and scope of these resolutions to strengthen and advance fundamental human rights, building resilience and promoting the role of multilateralism as a tool to face the triple planetary crises and recover better from the impacts of the COVID-19 pandemic.
Global Minimum Taxation of Multinationals: Opportunities and risks for some African States
By AMAGLO Kokou Essegbe, KOUEVI Tsotso and ADJEYI Kodzo Senyo
To face the challenges posed by the digitization of the economy, the OECD’s Inclusive Framework has developed two Pillars to address tax base erosion and profit shifting. The objective of Pillar Two is to define the minimum amount of tax to be paid by multinational enterprises in the jurisdictions where they operate. The OECD’s Inclusive Framework has adopted an average effective rate of 15% for this purpose. The objective of this study is to show whether the implementation of Pillar Two in African jurisdictions constitutes an opportunity or a risk for them.
The results show that it is an opportunity for countries with a low effective tax rate and a risk for countries with a high effective tax rate. Therefore, setting a 15% income tax rate for non-resident multinationals is an opportunity for some African countries. For it would constitute for these countries a source of additional tax revenue mobilization. For this reform to be an opportunity for Africa, however, the minimum effective tax rate must be raised to at least 20%, as was demanded by the African Tax Administration Forum (ATAF).
The risk that lies in the application of an effective rate of 15% for Africa as a whole is that some African countries might have to reduce their effective tax rate. This would be a loss of revenue for those African countries. Since most countries in the African jurisdiction have effective tax rates and statutory corporate income tax rates that are more than 20 percent, above the set average effective rate, multinationals would seek to shift their profits to the countries with the most advantageous taxation. This could lead to a transfer of profits to other jurisdictions.
Leveraging South-South and Triangular Cooperation for Reducing Poverty and Hunger, and Promoting Rural Development
By Yuefen Li, Daniel Uribe and Danish
The world is experiencing unprecedented global multidimensional crises that have increased poverty, hunger and food insecurity, with the sharpest impacts being felt among rural areas and communities. Deepening international cooperation is essential to help developing countries face economic headwinds and recover from lasting scars of the COVID-19 pandemic and climate change-induced natural disasters. In this scenario, scaling up of South-South and Triangular Cooperation (SSTC) can play a critical role in catalyzing sustainable development initiatives in developing and least developed countries.
This policy brief therefore considers how SSTC can be effectively leveraged for undertaking initiatives on poverty alleviation, hunger reduction and rural development through strengthening of national SSTC institutional setups. It also explores how SSTC can facilitate increased coordination among stakeholders, and considers areas for fostering mutually beneficial initiatives between developing countries. This brief then focuses on the institutional setup for SSTC in some selected countries across Asia, Africa and Latin America, and considers their role in mainstreaming of SSTC. It further considers some recent experiences from developing countries that use SSTC modalities, outlining important initiatives which could be shared with partners to support poverty alleviation, food security and rural development efforts. Finally, the brief provides some important conclusions and lessons learned which can support developing countries’ efforts to achieve the SDGs and the 2030 Agenda.
Taxation of Computer Software: Need for Clear Guidance in the UN Model Tax Convention
By Abdul Muheet Chowdhary and Sebastien Babou Diasso
Developing countries pay enormous sums of money for the right to use intellectual property such as patents, trademarks, copyrights, etc. Such payments are known as ‘royalties’. The scale is enormous, and just 27 South Centre Member States paid $45 billion in 2020 as royalties. Some proportion of these payments are for the right to use computer software. Developing countries can gain significant revenues if the United Nations can provide clear international tax guidelines that payments for the right to use computer software should be taxable as royalties. This Policy Brief provides the world’s first country-level revenue estimates for 34 of the South Centre’s Member States and finds that they could collect potentially $1 billion in tax revenues in 2020 had they been able to tax payments for the use of computer software as royalties.
Enforcing Secondary Taxing Rights: Subject to Tax Rule in the UN Model Tax Convention
By Abdul Muheet Chowdhary and Sebastien Babou Diasso
The Global Anti Base Erosion (GloBE) Rules under OECD’s Pillar Two recommendations, with a minimum effective tax rate of 15%, are expected to play a significant role to end the ‘race to the bottom’ in corporate taxation, which is one of the main drivers of profit shifting. However, the thrust of these rules is designed in a manner to give priority to the developed countries. In this light, the Subject to Tax Rule (STTR), which is a treaty-based rule that allows source jurisdictions to impose limited source taxation on certain payments that are taxed below a minimum rate in the country of residence, is of extreme significance for the developing countries. Under Pillar Two, application of STTR is restricted to base eroding payments or mobile income between related parties only, which does not address Base Erosion and Profit Shifting (BEPS) concerns in an entirety. That apart, the withholding tax rate of 9% proposed by the OECD may not result in generation of significant resources for the developing countries. In this light, developing countries keenly expect that the UN Tax Committee should devise an STTR that is simple to operate, has a broad scope covering all payments in a tax treaty and imposes a higher withholding tax closer to 15% to bring meaningful revenues for them. Also, developing countries desire that STTR provisions may be introduced at the earliest so as to speedily implement them through the UN Multilateral Instrument under contemplation. This Policy Brief also examines existing average withholding tax rates on interest and royalty payments in existing tax treaties of 48 South Centre and 52 G-77+China Member States and finds that out of a total of 100 developing countries, only 25 would stand to benefit from the STTR in its restricted form in Pillar Two, further strengthening the need for an improved version formulated by the United Nations.
The Midterm Comprehensive Review of the International Decade for Action on Water for Sustainable Development amid growing tension between a human rights perspective and the commodification and privatization of water
By Luis Fernando Rosales Lozada
Climate change is affecting the availability of water resources in different regions around the world. In addition, some growing trends towards water commodification and privatization could exacerbate the problem since they are guided by profit maximization strategies. The United Nations (UN) will hold the Midterm Comprehensive Review (MCR) of the Implementation of the Objectives of the International Decade for Action, “Water for Sustainable Development”, 2018–2028, from 22 to 24 March 2023. This is an important opportunity for the international community to assess the challenges on access to clean drinking water and sanitation. The MCR debates and outcomes should be guided by a human rights approach towards promoting access to water for all in 2030 in alignment with Sustainable Development Goal (SDG) 6.