The OECD's highly anticipated proposal for reform of international tax rules will likely further intensify global inequalities and fail to curb rampant tax abuse, new analysis reveals.
A study by the Tax Justice Network found that the OECD proposals, designed to limit the scope of multinationals to avoid tax, could end up shrinking the tax paid in poorer countries.
Researchers found that the additional tax recovered from corporate tax havens would mainly benefit the richest countries.The findings indicate that while there will be a 5% fall in profits booked in tax havens, around 80% of the redistributed profits will go to high income countries.
[OECD is] doing little to redistribute profits from tax havens, and even less for the lower-income countries that lose the most to corporate tax abuse"
While upper-middle income countries are expected to see some benefit, developing countries would see their tax base shrink by 3% under the suggested rules, unless employment is included as a factor determining the allocation of taxable profits.
The OECD is currently investigating different forms of reallocating tax assessment rights. The initiative primarily addresses digital companies, which can have significant market share in countries without a physical presence and as a result escape corporate taxation.
In addition, the proposals for global corporate tax reform are more broadly aimed at lowering and redistributing the amount of profits that is allocated to low-tax jurisdictions.
Alex Cobham, chief executive at the Tax Justice Network and a co-author of the study, said: "We're concerned the OECD may be fumbling a golden opportunity to lead the world into a new era of equitable international tax rights.
"After promising the radical shift in international rules that is urgently necessary, the OECD seems to be lapsing back into tinkering at the margins - doing little to redistribute profits from tax havens, and even less for the lower-income countries that lose the most to corporate tax abuse."
The analysis also found that the OECD proposal is by far the least beneficial for non-OECD members, including the G24 and G77 groups of countries. The tax base of OECD countries would collectively grow by nearly $5bn under the OECD reform, while the tax base of G24 countries would collectively grow by $700m and the tax base of the G77 group of countries by just $300m.
The analysis defined tax havens based on a list of 30 jurisdictions, which included offshore financial centres like the Cayman Islands but also onshore countries like the Netherlands, Ireland and Switzerland.