Call To Reform ‘Outdated’ Global Corporate Tax Regime

World leaders must step up their efforts to fix the “outdated system of taxing global profits”, according to a panel of development experts who said a planned crackdown on corporate tax avoidance does not go far enough.

 

However, a G20 plan for a thorough overhaul of international corporate tax rules, to be unveiled on Monday, was hailed as a “a step in the right direction” by the panel set up by trade unions, development charities and campaigners.

 

The revamped tax rules, aimed at closing loopholes in the international tax system, are the result of two years of intense discussions between 60 countries. The Paris-based Organisation for Economic Co-operation and Development, which led the project to tackle so-called “base erosion and profit-shifting”, or Beps, will present its findings to finance ministers at a meeting in Lima, Peru.

 

The panel, called the Independent Commission for the Reform of International Corporate Taxation, was set up in June to campaign for far-reaching changes to the international corporate tax regime after the agreed reforms have bedded in.

 

It said the Beps project “has made progress that would have been thought of as impossible just five years ago”. But it urged world leaders to be bold in their reforms to avert the escalation of the “already fierce public discontent” over corporate tax.

 

Joseph Stiglitz, the Nobel Prize-winning economist on the panel said: “The current reform efforts . . . takes steps in the right direction but much more needs to be done to address the core deficiencies of our system for taxing global corporate profits.”

 

Another panel member, José Antonio Ocampo, former Colombian finance minister, added: “The Beps project could have gone much further if they had not made so many concessions to tax advisers, who have much invested in the current system, and to governments, who want to retain powers to give concessions to business.”

 

The panel’s central demand is for a fundamental reform of the global regime that would involve using a formula to carve up profits between the countries where multinationals operate.

 

Defenders of the current approach, which treat multinationals’ subsidiaries as separate entities, say the campaigners’ proposals for a “formulary apportionment” system is unworkable because governments would not agree on the formula, multinationals could game the system and poorer countries might end up as losers.

 

The panel said the Beps public consultation meetings had been dominated by multinational corporations, which were predominantly headquartered in the US and Europe, whose governments were minded to protect the competitiveness of their own multinationals. “The lobby of the leading technology companies has been especially formidable,” it noted.

 

The panel also called for a global minimum corporate tax rate, for the UN to take a great role in establishing tax policy and for greater efforts to stop the proliferation of tax incentives.

ICRICTJoseph E. Stiglitz