Deal on cross-border tax needed to save economies ravaged by Covid-19, says OECD

Economies struggling with the costs of Covid-19 could face a double blow from escalating trade wars unless international talks to rewrite cross-border tax rules are successful, the OECD has warned.

The Paris-based organisation, which has been steering the talks, said governments would come under further financial pressure from retaliatory tariffs should governments fail to agree a global tax framework by an extended deadline of mid 2021.

An agreement could offset some of the costs of the pandemic by raising as much as $100bn (GBP77bn) in extra tax, the OECD said, but only if a consensus among the 140 countries that have embarked on talks can be reached.

Several countries have resisted plans for a global tax regime, including the US, which has sought to protect major digital companies from targeted tax rises and tough regulations in the EU and UK.

Pressure has mounted on politicians to force large corporations to increase their tax payments following a string of reports showing that many firms pay only a fraction of the headline rate.

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But anti-poverty campaign groups said the OECD blueprint was weak and failed to establish a system that would trouble a global elite of rich corporations, many of which use sophisticated financial tools to shift their profits to low tax havens.

Alex Cobham, chief executive at the Tax Justice Network, said: “The OECD has once again shown that it is incapable of delivering the urgent tax reforms the world needs.

“Countries are losing hundreds of billions in tax to tax havens every year, and yet the OECD’s blueprints offer little more than a ‘tax haven lite’ model where tax havens can keep the majority of profit they siphon from around the world so long as they share some of those profits with the richest of countries.”

The blueprint sets a minimum corporate tax rate that corporations must pay on their profits, wherever they are domiciled, including low tax jurisdictions. This follows an agreement in the first phase of talks that companies must pay tax on their income where transactions take place.

Cobham said the first phase, which Google, Apple and Facebook have said they support, was “highly complex” and only reverses “a few billion dollars” of corporate tax savings, with almost nothing going to lower-income countries.

The OECD’s secretary general, Angel Gurria, said: “The alternative to finding an agreement would be a trade war … The last thing you want at this time with Covid-19 is to have to deal with further trade tensions.”

In such a worst-case scenario, trade disputes could knock global GDP back by more than 1%, the OECD estimated in an impact assessment.

However, new rules for digital taxation and a proposed global minimum tax would increase global corporate income tax worldwide by 1.9% to 3.2%, or about $50bn to $80bn per year.

That could reach $100bn after including an existing US minimum tax on overseas profits, amounting to 4% of global corporate income tax, the OECD said.

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