Globalisation
of tax avoidance on developing countries, some researchers have suggested that some of the globe’s corporate powerhouse companies – such as Amazon, Facebook and Google – avoid tax by taking advantage of complex organisational structures. The inequitable nature of the rules is under scrutiny too.
“In my research, I found that GloBE is not good for developing countries,” says Habimana. GloBE was and is being engineered by the OECD, whose members are all developed countries. Yet, developing countries are used to attracting foreign investment through tax incentives. “The OECD’s interest is to protect the interests of its members as capital exporters,” Habimana continues. “These are in conflict with the interests of developing countries, which are capital importers. “These have been challenged in several cases but, in reality, not all tax incentives are bad – it is a question of governance.” If GloBE is effectively implemented, “developing countries face a high risk of losing some tax revenues”, Habimana adds. Some foreign investors may lose interest in investing in countries that attract foreign direct investment (FDI) through tax incentives because benefits will be hit by the right to tax back. In Habimana’s native Rwanda, for instance, ambitions to grow the economy depend on FDI. Boasting capital investments of $1bn a year, the country could seriously be affected by any attempt to rein in its tax incentives.
Universal adoption?
Despite these concerns, the adoption of the GloBE rules has been significant, with over 135 countries and jurisdictions embracing the tax changes. This has arguably been possible due to the distinct layers in which the rules operate. The first is the domestic tax layer, which refers to a country having an incentive to introduce a corporate tax within its own borders. This incentive exists because if a country fails to tax corporations sufficiently, other countries will do so through the so-called upchain ‘parent’ form of tax, known as the Income Inclusion Rule. The final layer here is the Undertaxed Payments Rule (UTPR). Essentially acting as a backstop, the UTPR comes into force if a jurisdiction hasn’t introduced a domestic tax – or implemented an Income Inclusion Rule – that brings the corporate tax rate up to 15%. When a jurisdiction introduces a UTPR, sister companies of any given multinational will pay tax to bring the top-up tax of a low-taxed subsidiary up to 15%. Yet here too, uncertainty is arguably the order of
the day. For while GloBE already has all the signs of spurring a radical transformation to the financial
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landscape, with countries as varied as Andorra and South Africa taking the plunge, Bunn says that “complete universal adoption will likely face the same challenges that any large-scale policy change poses and will, therefore, be difficult, if not unlikely”. Collaboration to ensure universal and simultaneous adoption has, at any rate, been a prominent item on the global tax agenda. In 2022, for instance, the Chartered Institute of Taxation expressed concern at the UK’s rush to implement a multinational tax plan, with John Cullinane, the organisation’s then director of public policy, stating that, “it is more important to do this right and to do it together than it is to do it quickly”. Companies in developed countries, for their part, may encourage the universal adoption of GloBE rules by aligning themselves with the OECD – which naturally drives the GloBE project. “However,” reiterates Habimana, “I would advise those organisations interested in developing countries’ interests to stand against the universal adoption of GloBE.”
Wheels in motion
These concerns aside, there is some evidence that GloBE isn’t the end of global tax collaboration. If, after all, GloBE does receive political support, the IF’s infrastructure, which sees around 140 countries operating primarily through consensus, could mean that global tax collaboration goes ahead – whatever the naysayers do.
In a 2023 address, for example, former OECD tax director Pascal Saint-Amans emphasised that Pillar Two is “happening” – and that GloBE does not have to mean global, as not every country on Earth needs to implement it. Rather, if the globe has a critical mass of nations with incorporated companies, and sufficiently sized market economies, all multinationals will be taxed due to the upchain ‘parent’ form of tax called the Income Inclusion Rule, (the second layer) or the backstop- serving tax, the UTPR (the third layer). Not that this prospect pleases critics like Habimana. “Given the dichotomy around GloBE, it is time to end an era in which the OECD is the engineer and master of the international tax system,” he urges. “It is now time for the global tax system to be led by a neutral international organisation.” Suggesting the United Nations, Habimana says the organisation is “in principle in a good position” to take charge of designing global taxation.
For now though, it appears GloBE is unstoppable – even if its self-proclaimed mission of ‘building fairer societies through tax global tax cooperation’ remains controversial at best. ●
10%
The number of countries that the OECD says have embraced GloBE rules.
The potential percentage losses in global corporate income tax revenue caused by base erosion and profit shifting practices.
135+ $150bn
The new annual global corporate tax revenues estimated by the OECD as a result of adopting a minimum 15% effective tax rate.
OECD 21
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