South Asia and the Need for Increased Tax Revenues from the Digitalized Economy
By Abdul Muheet Chowdhary
It is understandable why Pakistan and Sri Lanka, both members of the OECD Inclusive Framework, rejected the Two Pillar solution of the OECD on the taxation of the digitalized economy. Both Pillars would have deprived them of badly needed revenues, especially Pillar One. South Asian countries, amongst the poorest in the world and with high levels of external debt, must conduct a careful cost-benefit analysis if they are considering proceeding with Pillar One. Agreeing to this means foregoing unilateral measures on all companies, including those out-of-scope and losing vital policy space. Further, the agreement will have a long shelf-life and likely last for the next 30-40 years. Thus, all developing countries, including from South Asia, should be clear about what they are ‘getting into’.
Impact of a Minimum Tax Rate under the Pillar Two Solution on Small Island Developing States
Deadline: 15 March 2022
Pillar Two will end the race to the bottom in tax matters as allowed by the absence of a minimum global tax, likely affecting many financial services in some developing countries, removing the option for them to rely upon tax competition as an economic model. Hence, there is a need to understand how the Pillar Two rules are going to affect developing countries, particularly in small islands developing States where a large portion of their economies rely on tax-related financial services. It is necessary to consider development strategies aiming to deal with the potential disruptions and job losses posed by Pillar Two. These development strategies must provide pathways through which these countries can ensure employment opportunities to their people that require similar skill sets from some soon-to-be redundant segments of the financial industry. These can also highlight future financial sectors with potential where these countries can consider exploring/reorienting to benefit their economies.
Accordingly, this call for papers invites analysis on the effects of Pillar Two inSmall Island Developing States that are Member States of the G-77+China. The proposals can either provide generalized suggestions for a whole set of countries or provide customized advisory for individual countries.
This call invites established scholars, early career academics, PhD students and practitioners (policy makers, tax officials, lawyers) across multiple disciplines to submit abstracts.
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.
South Centre Semester Report, July – December 2021
The South Centre undertakes policy-oriented research on issues, as defined in its Work Program (https://www.southcentre.int/work-program/), that are relevant to the achievement of the Sustainable Development Goals. It supports the countries of the South to effectively participate in negotiating processes in order to build up a multilateral system that supports and does not undermine development efforts. It also provides policy and technical advice and capacity building in support of countries and institutions of the South. Catalogues of the publications of the Centre can be found at https://www.southcentre.int/publications-catalogues/.
The South Centre expands its reach and impact by leveraging cooperation with other international organizations, research institutions, academia and civil society.
This Semester Report is an account of how the South Centre’s Secretariat has fulfilled the Centre’s mission through the different workstreams for the period July – December 2021.
Global Minimum Corporate Tax: Interaction of Income Inclusion Rule with Controlled Foreign Corporation and Tax-sparing Provisions
By Kuldeep Sharma, ADIT (CIOT,UK), FTI (Australia), Insolvency Professional (IBBI)
The OECD/G20 Inclusive Framework on BEPS (the Inclusive Framework) agreed on 8 October 2021 to the Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy. The Two-Pillar Solution will ensure that MNEs will be subject to a minimum tax rate of 15%, and will re-allocate profit of the largest and most profitable MNEs to countries worldwide. Under these recommendations, inter alia, Pillar Two consists of two interlocking domestic rules (together the Global Anti-Base Erosion Rules (GloBE)), which includes an Income Inclusion Rule (IIR) to impose a top-up tax on a parent entity in respect of the low taxed income of a constituent entity. The IIR shall be incorporated in domestic laws of opting jurisdictions, and seems to have profound interaction with the Controlled Foreign Corporation (CFC) and tax-sparing provisions. The IIR operates in a way that is closely comparable to a CFC rule and raises the same treaty questions as raised by CFC rules, although there are a number of differences between the IIR and the CFC rules. In the context of IIR, there may be a case when the Ultimate Parent Entity (UPE) is taxed on the Constituent Entities’ (CEs) income and the spared tax is not considered as covered taxes for calculating the Effective Tax Rate (ETR) of the CE. This generates a situation for developing countries in which they have to shore up their ETR by overhauling their tax incentive regimes and retooling domestic legal framework for more effective taxation of MNEs to avoid losing a significant portion of their tax right/base to a developed country. Adoption of IIR (which is an extension of CFC rules) under Pillar Two is therefore going to create conflict with the tax-sparing rules. From the perspective of developing countries, the adoption of GloBE implies losing tax incentives as a tax policy instrument to attract foreign direct investment. This is why every country involved, but especially developing countries, should undertake a thorough examination to determine whether such measures are convenient for their interests in the long run.
The Place of Multilateralism in Tax Reforms: Exclusionary Outcomes of a Purported Inclusive Framework
By Alexander Ezenagu
Countries have come to accept the wide application of international tax rules in both their domestic and international tax affairs. However, where international tax rules fall short of the legitimate expectations of countries and fail to provide necessary guidance, countries may be compelled to seek other sources of guidance. In this paper, it is argued that in the absence and failure of international tax rules to provide adequate guidance and encourage a fair tax system, countries should not be prohibited from exercising their fiscal sovereignty.
Making the UN Tax Committee’s Subcommittees More Effective for Developing Countries
By Abdul Muheet Chowdhary, Sebastien Babou Diasso, and Aaditri Solankii
New United Nations (UN) Tax Committee Members have been appointed by the UN Secretary-General and among them 13 out of 25 are from developing countries. The Committee sets international tax standards, vital for financing for development, and works mainly through its Subcommittees. However, an unhealthy trend over time has been the disproportionate involvement of business representatives in the Subcommittees, which can be harmful for promoting the interests of developing countries. This policy brief examines this trend and outlines some of the tools available to developing countries to promote their interests in the Subcommittees.
Statement by the South Centre on the Two Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy
The South Centre takes note of the Statement by 136 member jurisdictions of the OECD/G20 Inclusive Framework (IF) made on 8 October 2021, on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. The broad architecture of the agreement is now in place and it is clear to developing countries what they can expect from it.
Conference:International Taxation from Global South Perspectives
In Partnership with The Policy Center for the New South
Wednesday 13 October 2021 15h00 – 16h30 GMT+1 Live-Stream (YouTube, Facebook, Live Tweet)
The key questions that will be discussed in this event will be:
What reforms are needed to international standards that can strengthen the capacity of governments to raise revenue from MNEs without discouraging economic activity?
What is the cost of tax havens for developing countries and what role can international cooperation play in dealing with this issue?
What might the future of tax reform look like in the post-COVID-19 era, given the growing digitalization of the economy?
Ending Extreme Poverty by Ending Global Tax Avoidance
by Abdul Muheet Chowdhary
The world is estimated to lose around USD 500-600 billion in revenues from corporate tax avoidance each year. Ensuring that governments can collect this revenue through ending global tax avoidance will play a major role in ending extreme poverty. Overseas aid provided to developing countries focused on eliminating extreme poverty must therefore incorporate addressing tax avoidance, especially by Multinational Enterprises, as a core component of their efforts.
