Not Just Be Taken For A Ride

Context: Global agreement on corporate tax rates, pioneered by the Paris-based Organisation for Economic Cooperation and Development (OECD), endorsed by the G20 in Rome.

Importance of global agreement on corporate tax rates

• Ensures a fairer allocation of profit and taxing rights among countries.
• Marks the beginning of end of a four-decade-long race to the bottom: As countries competed to attract investment by offering progressively lower tax rates at the cost of bleeding public exchequers.
• Checking profit shifting practices: After implementation, tech giants like Amazon and Meta née Facebook will no longer be able to book profits in low-tax countries but will have to pay taxes in countries where their goods or services are sold, even without physical presence.
• Adversely impacting long holdouts like Ireland, which attract investment and jobs by taxing MNCs lightly.
• Benefits countries like India that contribute significantly to customer base of tech giants but get very little tax revenue.

Challenges before global tax agreement on corporate tax rates

• Not going to end tax competition as the agreement only sets a floor.
• Implementation challenges due to poor track records of all multilateral agreements whether on climate change or global trade and G-20.
• Issues with G-20: Created to uphold vested interests of U.Se. to bail out its economy after GFC.
  • After the recovery of U.S economy, G20 has gone back to being just another talking shop, a photo-op for global leaders.
  • G20 delivers with urgency only when the interests of advanced economies, particularly the US, were threatened with urgency like the Global Financial crisis (GFC).
  • Slow-burning crises like climate change, inequality, tax evasion that affect the global, rather than US, cut little ice with G-20.
• Lip service to multilateralism may prove difficult to roll out global tax agreements. Country after country shut their borders and advanced economies cornered vaccine supplies for their citizens.

Conclusion: Global tax agreement, unlikely to get very far unless or until advanced economies, suit the action to words and crackdown on tax havens in their territories.