As G7 finance ministers meet this weekend to discuss the proposals for a new global digital tax put forward by the OECD, it is hard not to feel defeatist.
The OECD proposals do not fundamentally change how the digital economy is taxed and the proposed global minimum corporate tax rate looks to be set dangerously low.
At the same time, developing countries are unlikely to benefit from the new rules and tech giants are unlikely to feel any impact.
In the face of a global health and economic crisis and massive budget deficits, the new rules for taxing the digital economy look set to be fully inadequate to meet the challenges ahead.
ActionAid is one of a number of organisations calling for meaningful reform of international corporate taxation that would ensure companies’ taxes reflect their real economic presence, and for introducing a minimum corporate tax rate to help fight the problem of tax havens.
But G7 and OECD countries are set to miss this golden opportunity to set a global minimum corporate tax rate at a level (at least 25%) that would help ensure that companies pay their fair share of taxes.
Instead, they look likely to go for a 15% rate or less, which could trigger a downwards spiral and a race to the bottom for corporate tax rates around the world.
The OECD has been leading on the process to negotiate what improved taxation of tech companies could look like. This was an opportunity to better align where companies pay tax with where they have economic activity. Instead, OECD governments look set to just fiddle with some details, rather than fundamentally changing the way companies are taxed.
The proposals have also missed the chance to increase transparency by making it mandatory for companies to publicly declare how much tax they pay in each country and make registers of beneficial ownerships public in all jurisdictions so that it is known who the ultimate owner of each company is.
We are living through a global health crisis that has translated into an economic crisis, which in turn has exacerbated inequality and driven millions further into poverty globally with women and girls receiving the brunt of the impacts and picking up even more unpaid care and domestic work.
Governments need to invest in public services that can meet the demands of the health crisis, create jobs and fight poverty and inequality. Clearly, increased tax revenue is needed and this ought to be collected through progressive means, ensuring those with more, pay more. Taxing the digital economy better and fighting tax avoidance must be central to such efforts to fund the recovery. By failing to agree on more ambitious policies to tax the digital economy, governments have missed a key opportunity to raise the necessary funds for the investments needed.
Our research shows that the world’s largest economies are losing up to US$32billion (€26.2bn) in potential annual tax revenue from five of Silicon Valley’s biggest tech companies. Tax revenues from tech giants with an economic presence in the Global South are even more crucial for vital investment in public services, such as health and education. Our research shows Nigeria could raise an additional US$100 million (€82.2m) in taxes from the five companies if taxed fairly, enough to pay the annual salaries of 70,000 nurses.
The OECD proposals have primarily been negotiated by the Global North or the world’s richest countries and cannot be claimed to be a "global deal". While they look set to raise some additional revenue for countries where companies are headquartered, mainly in developed countries, they will do little to raise more revenues in developing nations.
Until a truly global deal is reached, countries and regional blocs such as the EU should find ways to raise more revenue from digital companies through unilateral measures, such as the digital levy considered by the EU or various forms of profit and transaction taxes aimed at the digital economy that safeguard small and new businesses while ensuring that tech giants pay their fair share of tax.
Many countries have also realised the importance of taxing the digital economy with countries such as France, Spain, Kenya and Zimbabwe deciding to introduce various forms of digital service taxes. This is just one of the many options available to countries to tax the digital economy unilaterally, and it is fully understandable that many countries are now choosing to go down that route as there seems to be no effective multilateral solution for how to tax the digital economy in sight.
The upcoming G7 negotiations should not accept the OECD deal but push for more ambitious and meaningful reform of the international tax system. The international community must come together with all countries negotiating on an equal footing, rules that will properly address the tax avoidance, secrecy and unfair distribution of taxing rights that continues to plague international corporate taxation. There is no time to waste.
Anders Dahlbeck is global tax policy manager at anti-poverty NGO ActionAid