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Tax reforms – by the rich for the rich

The OECD's reforms will boost rich countries' tax revenues but do little to stem illicit financial flows from developing economies

Governments around the world could get over $150bn in extra tax revenues a year under a new accord signed at the Organisation for Economic Cooperation and Development in Paris on 8 October.

To end the race to the bottom on corporate taxation, the accord also sets a minimum rate of 15% in line with the new international tax plan being pushed by the United States administration under President Joe Biden.

It was signed a week after the unveiling of the Pandora Papers, reporting on tax avoidance schemes around the world. But the OECD's new tax accord offers little to help developing economies trying to clamp down on illicit financial flows and capital flight.

The OECD pact will hit firms with a global turnover above $20bn which report profits of over 10% on turnover.

Nigeria and Kenya, together with Pakistan and Sri Lanka, withheld their support for the package. They complained the new accord would disproportionately benefit big economies but smaller countries could lose their rights to tax revenues under the plan.

Other developing country finance ministers complained they were being presented with a choice between two bad options, neither of which they had been involved in negotiating.

However, US Treasury Secretary Janet Yellen insisted that the agreement 'will stop the four-decade long race to the bottom of corporate taxation.' The new accord will force Ireland, Luxembourg and Malta to raise their tax rates but that will not change the geographical pattern of tax revenues. International companies will continue to pay most of their tax revenues in rich economies in the north, not in developing ones in the global south.

Campaigners argue that the shortcomings of the OECD pact underline the need for global tax policies to be entrusted to a new UN tax agency in which developing countries are represented. None of the OECD's 38 members are from developing countries (AC Vol 59 No 5, Tax treaties 'made by the rich' and Vol 56 No 15, Goalfest in Addis) although it has set up a special consultative group on policy which includes 27 of Africa's 55 countries.



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