Biden’s global taxation plan may leave developing countries “almost nothing”

Developing countries are lobbying for greater power over multinational corporations, and US President Joe Biden’s plan to reform global corporate taxes will not help the countries most in need of tax increases.

Washington’s ambitious proposal Taxes on profits earned in countries with little or no physical business but substantial income will be taxed to tax the 100 largest companies in the world and the lowest tax rate in the world will be imposed with a view to ending their term as ” Companies in countries/regions with “reserve bidding” use low-tax jurisdictions to guide profits.

But senior diplomats and lobby groups told the Financial Times that even if the company’s profits (in many cases the labor and raw materials used) come from developing countries, the company will still pay most of its taxes in the country where its headquarters are located. paragraph.

They are also concerned that many developing countries did not participate in the OECD negotiations on the proposal, and worry that the final agreement is unlikely to reflect their interests.

The Nigerian Ambassador to the Organisation for Economic Cooperation and Development (OECD), Mathew Gbonjubola, said:. . The rule currently being formulated is that developing countries may get almost nothing. “

He agreed with the efforts of the United States and the OECD to involve the world’s largest companies. Pay more taxes globally. He said: “The fewer tax incentives that developing countries provide, the more income they can retain for development and the less they rely on borrowing or aid,” he said.

But he warned, “Whether it is a developed or a developing country, the source country should have the right to refuse, which is both logically and morally. [tax revenue] Pass to [companies’] Country of Residence”.

Gbonjubola added that the United States “has not provided economic reasoning for only 100 companies.” The focus is to reduce the OECD proposal, which will cover thousands of companies.

“The most important difference between developed economies and developing countries is the threshold for determining how many companies to include,” said Sybel Galván, Mexico’s ambassador to the OECD.

Rajat Bansal, a member of the United Nations Committee of Experts on International Tax Cooperation, said that setting a threshold to capture only the largest companies would mean that “ultimately, many potential taxpayers will not be covered.”

Critics also say that the amount of tax levied under the US plan is too small because it may be less than one-fifth of the company’s profits. Ross Robertson, BDO International Tax Partner, said: “If the total reserves are insufficient…. It will not be able to obtain fair returns from external companies. [developing countries’] Regions to profit from [their] economic. “

The African Tax Management Forum, which advises the governments of the African continent, called for a tiered approach, setting the threshold for smaller economies to a lower level. It said: “We think it is fair that not all economies have a single threshold.”

ATAF is also concerned that poorer countries may not fight for their rights in the long and complex negotiations. “Although they do sit at the table, it is difficult for them to keep up.” .Africa’s political awareness of this issue and its importance may not be high [the proposal] Yes. “

Several large developing economies have participated in the United Nations’ competitive efforts to develop an international tax system, which is specifically targeted at digital service companies. The move was driven by a dispute over the small taxes paid by American tech giants in many lucrative countries in the United States.

The plan will give countries the right to levy taxes on the income of digital companies based on the income they generate, not just on the location of the company. According to ATAF, Argentina, India, Kenya and Nigeria have all recently introduced digital taxes, and many other African countries are also considering adopting digital taxes.

The UN proposal was supported by India and Argentina, and was approved by the UN Tax Commission last month. Other developing countries including Ecuador, Ghana, Liberia, Nigeria, Vietnam and Zambia also supported this.

This model is not binding and can only be formulated in a bilateral agreement after the participating countries have signed it. However, for the OECD, the timing is very troublesome.

“There seems to be a strange competition going on between the United Nations and the OECD,” said Tov Maria Redding, policy and advocacy manager of the European Debt and Development Network. “The United Nations is considering the development of digital service taxes, and the OECD is trying to get rid of them”, in favor of a system that applies to all industries.

Christian Hallum, senior tax and extractive industry expert at Ibis Copenhagen Oxfam, said that for some developing countries, the feeling of being left out in the OECD negotiations may prevent them from Willing to abandon plans for technology companies, which may lead to a stalemate. “There is a real risk that if rich countries decide the outcome of trade policy, [OECD] Process, this is what we are going to see. “

Galván of Mexico stated that the OECD negotiations were “difficult and constructive” and that several large developing economies “absolutely agreed to establish common ground. [tax] frame”.

But others warned that the US proposal may lose its legitimacy.

“You can call a rule a global rule, but if the decision is not truly global, why would a country that did not participate in making the rule sign the rule?” Reading said. “Although the global tax burden is falling apart, the world’s poorest countries are once again at risk of losing their debt, even though they need tax revenue more than any other country.”

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