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The FACT Coalition, along with its allies in the global tax justice movement, have been pushing for new global rules to combat tax dodging by multinational corporations which costs developed and developing countries hundreds of billions of dollars in lost revenues every year. This weekend, G-20 leaders formally adopted the new Organization for Economic Cooperation and Development (OECD) framework that represents an historic breakthrough to combat profit shifting and aggressive tax dodging by some of the world's largest corporations. The OECD global framework, endorsed by 136 of 140 jurisdictions, will reallocate taxing rights to some profits of the world’s largest multinationals to “market” jurisdictions and create a global minimum corporate tax for large multinational corporations equal to 15%. Subsequent to its adoption, governments will then have to turn to implementing the agreement in large part by 2023, which will involve addressing open technical questions and navigating domestic politics.
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The Framework comes as an investigative journalist consortium revealed the Pandora Papers earlier in the month, demonstrating once again how the extremely affluent, world leaders, may participate in a distinct and covert "offshore" financial sector. By encouraging profit-shifting and offshoring, the current global regime for taxing multinational corporations (MNEs) currently encourages MNEs to take advantage of, empower, and legitimize the “offshore” financial sector, as well, as the FACT Coalition has previously written. These systems encourage tax evasion, corruption, and illegal financial flows. They also deprive governments of funding required to address global issues like persistent inequities, climate change, and the COVID-19 pandemic.
Given the historic opportunity for the OECD agreement to start dismantling worldwide tax avoidance and financial secrecy regimes, the FACT Coalition weighed in on the need for the process to continue to incorporate concerns about process, transparency, and equity raised by developing nations led by the G-24, both in implementing the agreement and going forward.
Dismantling these systems and implementing the OECD deal must start at home for the U.S. This week, the White House released a new framework for the Build Back Better Act, which, if passed by Congress, would advance key components of the OECD deal domestically and begin to restructure the tax code to decrease the incentives to profit-shift and offshore. The revised Build Back Better framework, would, among other changes, revise the Global Intangible Low-Taxed Income (GILTI) tax to create a minimum U.S. tax rate on foreign profits equal to 15 percent, and it would apply the GILTI on a country-by-country basis, in each case, consistent with the OECD framework minimum requirements. The framework would also reform the base erosion and anti-abuse tax (the BEAT) so that it more effectively deters all base-eroding payments and deductions. That there is room for improvement in the proposed framework is not debatable as recent FACT analysis highlights based on the ways that an OECD deal can give the U.S. greater flexibility in stopping tax-dodging and promoting MNE accountability through tax. Indeed, both the OECD agreement and the Build Back Better Act (along with the public debate around provisions in the bill) demonstrate the need for greater transparency into MNE tax practices, including in response to any international taxation overhaul.
However, coupled with increased funding for the IRS and a broader corporate minimum tax being advanced, the revised Build Back Better and OECD proposals can work together to create a fairer tax system in the U.S. and globally to dismantle improper preferences for tax-dodging corporations at the expense of our communities.
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