STATEMENT OF THE SOUTHCENTRE AT THE SUMMIT OF HEADS OF STATE AND GOVERNMENT OF THE G77 PLUS CHINA
Havana, Cuba, 09.16.2023
This summit can contribute to consolidate the cooperation mechanisms between G77 member countries and the Non-Aligned Movement for the reform of the United Nations system and the global financial, trade and fiscal architecture where the interests and rights of developing countries are respected. It is also necessary to make effective the financial and technology transfer obligations of developed countries in the fight against climate change, including the operationalization of the loss and damage fund agreed at COP27.
The South Centre, as an intergovernmental organization created by and for developing countries, has benefited from strong cooperation with the Group of 77+China since its inception. We remain firmly committed to such cooperation in a variety of areas where the Group focuses its efforts.
Multistakeholderism and UN 2.0: Challenges and Alternatives for Developing Countries
7 September 2023 | 10:00 – 11:30 EDT
Co-organized By the South Centre and the Transnational Institute
Co-sponsored by Corporate Accountability and ESCR NET, Peoples´ Working Group on Multistakeholderism
This Public Workshop will discuss the findings of a new report commissioned jointly by South Centre and The Transnational Institute (TNI) and elaborated by Prof. Harris Gleckman on the idea of the increasing role of ‘multistakeholderism’ in making key policy and programmatic decisions in the context of the United Nations and other fora. The workshop will also serve as an opportunity to discuss the recommendations on how to deal with multistakeholderism and its risks for global governance and the participation of developing countries.
This event is designed as an open forum to foster dialogue and share views among representatives of the Group of 77 and China, particularly those based in Geneva and New York, and civil society organizations.
South Centre Statement to the Non-Aligned Movement (NAM) Ministerial Meeting
July 5-6, 2023
The South Centre supports developing countries with policy-oriented research, advice on international negotiations and capacity building. Since its inception, the South Centre has maintained a close relationship with NAM. We are strong supporters of its principles, appreciate its achievements, and believe in the central role that NAM can play in reforming the multilateral system.
The South Centre will continue to work with NAM and its member countries to support them in their efforts to shape a fairer multilateral system that is responsive to the needs of the Global South.
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.
Impact of a Minimum Tax Rate under the Pillar Two Solution on Small Island Developing States
By Kuldeep Sharma
The Research Paper commences with an overview of Pillar One and Pillar Two followed by detailed discussions on salient provisions of Pillar Two.
Pillar Two is envisaged to have a widespread impact on Small Island Developing States (SIDS) which are a distinct group of 38 United Nations (UN) Member States and 20 Non-UN Members/Associate Members of UN regional commissions that are exposed to unique social, economic and environmental vulnerabilities. In all, 36 SIDS that are members of the Group of Seventy-Seven (G-77) have been analysed, namely, Antigua and Barbuda, Bahamas, Bahrain, Barbados, Belize, Cabo Verde, Comoros, Cuba, Dominica, Dominican Republic, Fiji, Grenada, Guinea-Bissau, Guyana, Haiti, Jamaica, Kiribati, Maldives, Marshall Islands, Mauritius, Federated States of Micronesia, Nauru, Papua New Guinea, Samoa, São Tomé and Príncipe, Seychelles, Singapore, Solomon Islands, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Timor-Leste, Tonga, Trinidad and Tobago, and Vanuatu.
Two Pillar Solution for Taxing the Digitalized Economy: Policy Implications and Guidance for the Global South
by Irene Ovonji-Odida, Veronica Grondona, Abdul Muheet Chowdhary
The taxation of the digitalized economy is the single most important topic in international tax negotiations today. The OECD has devised a “Two Pillar solution” to the problem. Pillar One is focusing on a reallocation of taxing rights to market jurisdictions, which are largely expected to be developing countries, and Pillar Two is instituting a global minimum tax. The Pillar One solution, known as Amount A, will be codified into a Multilateral Convention (MLC) and is expected to be placed before countries for signature in early 2023. The solution ushers in a new paradigm in the taxation of multinational enterprises but has immense complexity and likely minimal revenue gains for most developing countries. It will also require them to give up the right of unilateral tax measures on all out-of-scope companies, meaning they will only be able to tax the fewer than 100 companies likely to be in-scope, if at all. The decision to sign or not is thus a historic one, as it will lock developing countries into a constricted new framework, at a time when revenue needs are especially critical to recover the economies from COVID-19 in the context of a turbulent state of the global economy.
However, the United Nations too has a solution, known as Article 12B. This operates in a different manner and is a minor modification to the existing decentralized international tax system which is based on bilateral tax treaties, and which developing countries are more familiar with. It is also likely to generate far higher revenues than Amount A, and does not restrict any of their sovereign taxing rights. This Research Paper assesses the various implications for developing countries from adopting the OECD’s or the United Nations’s respective solutions and concludes with a possible global South response to the Two Pillar solution.
Taux Minimum d’Impôt Mondial : Détaché des réalités des pays en développement
Par Sébastien Babou Diasso
Sous la direction des pays du G20 et de l’organisation de Coopération et de Développement Economique (OCDE), le Cadre Inclusif sur la réforme de la fiscalité internationale a adopté le 8 octobre 2021 une solution à deux piliers visant à résoudre les défis auxquels sont confrontés les pays dans le système fiscal actuel au niveau international. Cependant, le moins que l’on puisse dire, c’est que ces solutions n’apportent pas de réponses aux préoccupations de nombreux pays en développement, en particulier le taux d’impôt minimum de 15%, dans un contexte où la plupart des pays en développement membres de Centre Sud et du G-77+Chine ont déjà des taux effectifs bien au-dessus de ce minimum. Cette note vise à informer sur les niveaux actuels des taux d’imposition effectifs dans les pays en développement, pour lesquels les données sont disponibles, et à montrer pourquoi il ne serait pas pertinent de prendre en compte le taux minimum adopté dans le cadre inclusif. Mobiliser plus de ressources fiscales des entreprises multinationales est important pour les pays en développement pour la réalisation des Objectifs de Développement Durable. Nous recommandons donc que les pays en développement ignorent simplement le pilier deux et maintiennent leurs taux d’imposition actuels, ou les augmentent à des niveaux plus adaptés à travers l’application de mesures unilatérales plutôt que d’accepter d’être soumis à la procédure indiquée dans le pilier deux s’ils décident de l’appliquer.
Global Minimum Tax Rate: Detached from Developing Country Realities
By Sebastien Babou Diasso
Under the umbrella of the G20 and the OECD, the Inclusive Framework adopted on 8 October 2021 a two-pillar solution to address tax challenges arising from the digitalization of the economy. However, these solutions do not respond to the needs of many developing countries, in particular the global tax minimum rate of 15%, in a context where most developing countries, defined as Member States of the South Centre and the G-77+China, have an average effective tax rate higher than the adopted rate. This policy brief provides information of the current effective tax rates in some developing countries, and highlights why the minimum rate of 15% in Pillar Two is insufficient for them. Tax revenue mobilization is important for developing countries to achieve the sustainable development goals. It is thereby recommended that developing countries simply ignore Pillar Two and maintain their current higher rate or increase their rate to an appropriate level and enforce it through unilateral measures rather than the rule order under Pillar Two, which they will have to follow if they decide to implement it.
Streamlining the Architecture of International Tax through a UN Framework Convention on Tax Cooperation
By Abdul Muheet Chowdhary and Sol Picciotto
The architecture of international taxation at present is fragmented among multiple institutions. The UN Tax Committee, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and the Global Forum on Transparency and Exchange of Information for Tax Purposes are some of the key institutions which set multiple and overlapping international tax standards. The lack of a genuinely global international tax body has long been a lacunae in the international economic system and a disadvantage for developing countries, who are unable to participate in international tax standard setting as full and equal participants. This has been borne out most recently by the Two Pillar Solution for taxing the digital economy that has come from the OECD/G20 Inclusive Framework. The G-77’s renewed demand for a global tax body shows the issue continues to remain a priority for developing countries.
This Policy Brief provides a way for bringing the existing plethora of institutions under unified, universal and democratic control through a UN Framework Convention on Tax Cooperation (UN FCTC). This idea builds on the long-standing idea of a UN Tax Convention, which has also been recommended by the UN FACTI Panel. A UN FCTC would function similarly to the UN Framework Convention on Climate Change (UN FCCC), through a Conference of Parties (COP) which would give the existing institutions such as the UN Tax Committee and Inclusive Framework mandates to work on. In this regard, it would replace the narrow mandates of the OECD and G20 with mandates coming from all the Parties to the UN FCTC, which could be all countries, both developed and developing. A UN FCTC thus provides a practical and realistic way forward for a genuinely universal, intergovernmental framework for international tax rule making under the auspices of the United Nations.
Assessment of the Two-Pillar Approach to Address the Tax Challenges Arising from the Digitalization of the Economy
An Outline of Positions Favourable to Developing Countries
Report by the South Centre Tax Initiative’s Developing Country Expert Group
Irene Ovonji-Odida, Veronica Grondona, Samuel Victor Makwe
This report is written primarily for developing country negotiators in the Inclusive Framework and accordingly contains a technical assessment of Pillars One and Two. The aim is to discuss the positions and principles which can inform the negotiations in developing countries’ best interests. However, it is also written for a larger audience, particularly diplomats involved in financing for development discussions and international trade rule making, so as to sensitise them to the nuances of the ongoing discussion on the taxation of the digitized economy. In the midst of the COVID-19 pandemic and a devastating economic downturn, it is more important than ever to ensure that developing countries obtain their due taxing rights. This report is an initial contribution in that direction.
Mesures nationales sur l’imposition de l’économie numérique
ParVeronica Grondona, Abdul Muheet Chowdhary, Daniel Uribe
Le Cadre inclusif sur le BEPS de l’Organisation de coopération et de développement économiques (OCDE) envisage une approche fondée sur deux piliers en matière de taxation de l’économie numérique. Les premières estimations concernant l’impact de ses recommandations montrent une modeste augmentation de la collecte de l’impôt sur les sociétés, dont les bénéfices devraient revenir principalement aux pays développés. Dans le même temps, les mesures nationales de taxation de l’économie numérique se multiplient, en conséquence de la pandémie de COVID-19. Le droit international reconnaît pleinement ce droit aux pays, bien que cette approche soit considérée comme une forme d’unilatéralisme. Ce document de recherche met en lumière les mesures de fiscalité directe prises par différents pays et présente les trois approches clés retenues pour taxer l’économie numérique : (1) l’imposition de taxes sur les services numériques ; (2) l’élaboration de règles permettant d’établir un lien fiscal pour les entreprises numériques qui opère par l’intermédiaire d’une présence numérique significative ; (3) des retenues à la source sur les transactions numériques.
Medidas Tributarias Nacionales sobre la Economia Digital
Por Veronica Grondona, Abdul Muheet Chowdhary, Daniel Uribe
El Marco Inclusivo de la Organización de Cooperación y Desarrollo Económicos (OCDE) está considerando un enfoque de dos pilares en relación con el cobro de impuestos sobre la economía digital. Las estimaciones preliminares acerca de la repercusión de sus recomendaciones indican un modesto incremento en la recaudación de impuestos sobre la renta de las sociedades, cuyos beneficios se prevén que se dirijan principalmente a los países desarrollados. Al mismo tiempo, están proliferando las medidas nacionales en materia de cobro de impuestos sobre la economía digital, un cambio estimulado por el comienzo de la pandemia de COVID-19. Los países también tienen plenos derechos a aplicarlas en virtud del derecho internacional, pese a las etiquetas de “unilateralismo”. En este documento de investigación se ponen de relieve las medidas en materia de impuestos directos que están adoptando diversos países y se exponen tres enfoques fundamentales con respecto al cobro de impuestos sobre la economía digital: 1) impuestos sobre los servicios digitales; 2) normas sobre un nexo en base a una presencia digital significativa; y 3) retenciones en origen sobre las transacciones digitales.