The world is on the brink of “global tax chaos” says a report released by the OECD Friday, which warns that global corporations have become nearly stateless entities, avoiding taxation in rich and poor countries alike.
As the OECD states:
The OECD, who was asked by the G20 to take on the project of analyzing the current tax climate, says the “current weaknesses in the rules and the interaction of different tax rules leads to double non-taxation or less than single taxation.”
The report, Action Plan on Base Erosion and Profit Shifting, also notes that the “rise of the digital economy” has confused the issue of tax jurisdiction—as to where corporations should be taxed for virtual profiteering.
However, although the report makes several suggestions for reform including the construction of an international and “multilateral” framework for corporate taxation that ensures “taxable profits cannot be artificially shifted through the transfer of intangibles (eg patents or copyrights), risks or capital, away from countries where the value is created,” global tax watchdogs say the OECD’s suggestions are still far from adequate.
“The OECD has done little to dispel its reputation as the ‘rich men’s club’ by effectively ruling out the active participation of developing countries in shaping the tax reform agenda,” said the Financial Transparency Coalition (FTC), an umbrella group including charities such as Christian Aid, Global Witness, Global Financial Integrity, Tax Justice Network and Transparency International.
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The group maintains that developing countries’ “communication channels” with the OECD’s processes are restricted in comparison to more wealthy nations and therefore any reform processes going forward may not benefit poorer nations as greatly as richer ones.
“Restricting developing country participation…should not be confused for equal participation in the OECD’s decision-making process,” the FTC stated. “The UN Tax Committee in particular needs to be strengthened to participate more fully as representative of a broader group of countries.”
Likewise, as the OECD’s recommendations work to “patch holes” within current international tax code, the Tax Justice Network said the plan is not legally binding, fails to provide a more drastic tax-code overhaul and will be “fraught with political obstacles.”
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Professor Sol Picciotto, Senior Adviser to the Tax Justice Network, said:
“In poor nations we are largely failing to capture tax revenue from major international corporations which should be harnessed to ensure better social and economic opportunities for citizens,” said Alvin Mosioma, director of Tax Justice Network Africa. “This is why the current OECD reform process needs to include at its heart serious representation from developing nations rather than keeping them to the margins. That developing countries are kept out of this key process runs the real risk of further entrenching global inequality.”
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