okay great well welcome everybody to our panel the title of today's panel is global tax reform stalling I'm going to give you a little bit of context before I introduce all of our panelists today in October 2021 almost 140 countries in the world it isn't quite 140 it was actually 136 to be precise agreed to sign up to a historic oecd agreement on International tax reform which aims to ensure that multinationals pay their fair share of tax and help countries prevent corporate tax avoidance and evasion now it had two pillars the first pillar pillar one which gives Market jurisdictions further taxing rights on digital profits pillar 2 which is essentially a minimum corporation tax of 15 percentage points for multinationals so long as their revenues meet a certain minimal threshold now I thought it was this interesting that this week the oecd put out new numbers saying that pillar 2 so the minimum corporation tax should result in annual gains of over 220 billion dollars annual gains that is versus their initial estimates of 150 billion dollars so it's been revised upwards pillar one the digital tax is expect to lead to annual Global tax revenue gains of between 13 to 36 billion dollars of profits of about 200 billion dollars as well now it must be said that in December the EU also reached an agreement in principle to implement pillar 2 in a way that is consistent and compatible with EU law so where do things stand today how much progress has there been since October 2021 are we going in the right direction what is the future for this tax proposal those are some of the questions that I hope to get answered during this final today so I'm going to start off by introducing our panelists first of all we've got Matthias Corman the Secretary General for oecd to his rights we have zainab Ahmed the minister of finance budget and National planning of Nigeria welcome we have Gabrielle zuckman the director of EU tax observatory in France and faisalid Brahim the minister of economy and planning of Saudi Arabia young Global leader as well Matthias I'd like to start with you first of all can you just give us an update on the progress that has been made since October 22 2021 how would you characterize the transition from commitment to actual implementation and of course I'm guessing that the EU commitment in December was a step in the right direction well look I remain quietly optimistic that we will be able to reach the targeted implementation timetable of 2024 for pillar one and pillar two I mean in terms of the opening question is global tax reform stalling my answer to that would be no but of course I mean Global tax reform is difficult to achieve it was never going to be straightforward there was an agreement in principle in October 2021 which was indeed historic was a commitment to ensure that our International tax Arrangements in a digitalizing globalized world economy are fairer and work better and in particular that there was a fairer distribution of tax revenues into market jurisdictions now in relation to pillar 2 I mean you've mentioned a 27 EU member countries have now agreed by unanimous consensus to implement the agreement which comes on top of countries like the UK Switzerland Indonesia the uiee Singapore Korea various others and so I mean I believe that there is now very significant momentum around the implementation of a pillar 2 and and pillar 2 is designed in a way that makes itself perpetuating because it gives the right to those countries who legislate the pillar to to collect revenues that haven't up to 15 percent of of profits that haven't been collected Elsewhere for those countries that have legislated that deal to collect those revenues and so it really becomes a matter of a self-interest for countries that haven't yet legislated a pillar 2 in terms of their desire to protect their own Revenue bias but to follow suit and also press ahead with with legislating pillow too now in relation to pillar one that's the most complex work it requires multilateral convention we hope that the drafting process of the multilateral convention can be finalized by the middle of this year there's still some you know various areas where there is a technical discussion there's some public consultation processes currently underway for example on issues like how do we treat withholding taxes you know those who pay tax in Market jurisdictions decided withholding taxes are taxes at that pipe they should be taken into account others say they were not in scope and and really if withholding taxes are part of the equation then we should adjust the amount I I mean it comes very technical very quickly but there are some discussions around you know obviously for those companies that will be required to pay more tax in Market jurisdictions the upside opportunity and the interest for them is to get tax certainty where there is a more consistent approach internationally but then that means that those countries who have or who might be considering to pursue unilateral Digital Services taxes that they either should not proceed or indeed withdraw those Digital Services taxes so their conversations around this and and you know various other aspects I'm not going to bore you with all of the detail unless you have some more questions about it but the bottom line is this you know a multilateral agreement that is swiftly effectively and you know widely implemented is clearly in the interest of the global Community it's the best deal that is currently on the table we've got to be very careful not to let the perceived perfect be the enemy of the achievable good that is currently on the table and in my my proposition to all is that this is really the best opportunity the global Community has right now to improve the Via International tax Arrangements work in a digitalized global so you were just this thing the countries that have made some significant progress one country stands out for not being there and that is the US were you disappointed that the US who were so instrumental in pushing this agreement forward didn't actually include it in the inflation reduction act they included something similar but it doesn't subscribe to the same elements well I mean the United States has legislated a form of minimum tax you're right it's not entirely consistent with the provisions of the global minimum corporate minimum tax as designed and as a grade in the context of the oecd process but you know we are part of the work that is currently on the wise that put implies appropriate Bridges between different regimes to make sure that there is consistency in application and when the Democratic processes in the United States in the same way as in other parts of the world will of course continue to play out and and we would like to see all the countries that have signed on to the agreement to fully you know ultimately to fully Implement both pillow one and pillow two once the multilateral convention is in place for pillar one and indeed pillar 2 can happen as of now Minister I'd say I'd like to turn to you now Nigeria was one of the holdouts on the deal can you explain to us why and also what prompted Nigeria to go to the UN on behalf of other African nations to put forward emotion at the UN level to go ahead and do their own form of international tax reform well let me thank you for inviting me to be part of this session and also for the opportunity for us to speak to How concerned we are about this process and to emphasize that Nigeria is still on the table is still engaging the process and just seeks to have some improvements that need to be done to consider how this rule affects developing countries like Nigeria the original intention we were told was to allow taxation of digital uh enabled businesses in Market jurisdictions and to understand the main challenges and obstacles facing implementation of tax agreements across the world the question that we need to ask now is has this key objective been achieved by this Arrangement especially considering the substantial percentage of digital enabled businesses that have been excluded by the school for Nigeria the answer is we cannot sign up to this in the way it is now but if there is Improvement we are on the table and we are interested in still joining and the reasons for us are one the negotiation contrary to the agreed rules was not based on equal footing the laws that evolved did not carry the views of a lot of countries along so mostly what is matches are the views of the developed economies to the exclusion of most of our own countries the current agreement also does not deliver on the underlying objective and the rules are developed that are developed are so complex that it is difficult for us to cope with its with the implementation so the rules need to be simplified the pricing and the implementation are beyond our our uh our knee our capacity to cope with right now and also the narrowing of the scope of the rules that medium-sized digital Enterprises that dominate our markets are excluded most of the Enterprise digital Enterprise is in our Countryside the medium-sized ones that they're not the very very large ones and the outcome of this means that there will be also discriminatory taxes within our own jurisdiction so we will not be able if we sign up will not be able to tax this medium size and small size businesses while we are taxing similar companies that are Nigerian companies under in the operating in the same market so these are things that are important to us and need to be looked at and maybe some variation of the rules or maybe some stratification of the rules to meet the needs of developed countries the agreement also seeks to prevent our countries from taking any step to tax thousands of out of scope digital digital companies and for us that's where most of our revenues are right right now so we have issues that need to be looked at and we hope that the rules that are currently designed to be pro-developed countries will take into account the needs of our countries for example the income inclusion Rule and The Ordering of the pillar 2 which ensures that little or no taxation right is preserved for the source countries with this unfair design of the rules and the limitation of the scope to subject to tax rules the IRL that will be used by developing countries by developed countries will will simply be used to mop up tax taxes from our countries and we will end up with very little on nothing at the end of the day so these rules are important to have Global rules but it's also very important that the rules should be fair and the rules should encourage tax equity and as as much as possible accommodate the various variations of countries that are sitting on the table very clear I will give you a chance to respond but first I want to go to Gabrielle you've done a ton of work on global taxation in November last year you published a paper called Global profit shifting which has showed that profit shifting has dramatically increased since the 1970s essentially when a multinational moves its profit from a high tax jurisdiction to a low tax jurisdiction to what extent do you think the oecd proposal is going to stop that type of behavior and I guess the same question to that is a follow-up is are you expecting multinationals to change the way the way they behave on back of this proposal yeah thanks thanks a lot for the opportunity to be on this panel and I want to start by saying that this agreement is really a step in the right direction it's the first time that there's going to be an international agreement where countries agree on a minimum tax rate we have many treaties that are about everything except tax rates which is 3 what matters the most in of our tax policy it's going to make a real difference especially PR2 because many companies today pay less than 15 percent in taxes at least in some of the countries where they book profits and the reason for that is because there's widespread profit shifting to tax Havens we estimate with my co-authors that each year almost 40 percent of global multinational profits are booked or shifted to tax Havens where they are subject to very low tax rates you know of five percent or so so this agreement is going to make a difference that being said it's also very insufficient and it's also conceptually and philosophically flawed it is insufficient because a tax rate of 15 percent is way too low in many countries the ratio of taxes to total income is 30 40 50 which means that most social groups you know the middle class the working class they pay 30 40 50 of their income in taxes now we are saying for multinational companies it's okay to pay only 15 multinational companies some of the most powerful economic actors who've most benefited from globalization it's okay for them to only pay 15 it's very hard to understand for people and for good reasons so that's the first issue the second issue is that in practice uh multinational firms will still be able to pay significantly less than 15 percent and the reason for that is the the big conceptual problem with this agreement which is that not all profits are going to be subject to 15 their car votes which are very large and I want to explain that very quickly because it's a it's a really important philosophical question and I'm going to explain exactly what I mean by that the cover-outs mean that if you have sufficient activity in a country you employ people you have assets then the profits that derive from that activity are not subject to the tax the 15 minimum tax art is not fully subject to the tax the underlying uh kind of philosophy behind that is that uh tax competition when it's real you know when it's real factors of production and employees assets moving to low tax places is legitimate and there should be no floor to how low taxis can go even tax tax rates of zero percent are acceptable and I think this is the big problem this is the big problem because if we keep having a form of globalization where there is no floor to tax competition it means that who's going to keep benefit the most from globalization well the most mobile factors of production multinational firms their shareholders people who are at the very top of the income and the wealth distribution as it's going to fuel you know to keep fueling inequality and eventually this is not sustainable yeah so that's that's the big problem can I just ask you that 220 billion dollar that I mentioned at the beginning is is that can you contextualize it for us is that a decent sum to be raised from this type of overhaul it's it's decent and I I want to to stress again that I I do think that this is a step in the right direction so 220 billion dollars in extra revenue and we obtain very similar you know estimates in our own work in the context of the EU tax Observatory so we think this is realistic that's almost 10 percent of global corporate income tax revenues that's a significant amount of money yeah that's for pillar two pillar one you know most likely will generate significantly less Revenue uh but for PR2 we're talking about significant revenues and the reason for that what it means is that you have many companies that pay much less than 15 today uh last week the government accountability office in the US released the report well they estimate that the effective tax rate for U. S for large U. S corporations after the 2018 tax reform in the US has been nine percent nine percent so you know it's below 15 so it means 15 is going to make some difference but of course the big problem is why only 15 there could be much revenue if it was 20 of course 25 I want just to finish with that last thing in the mid 1980s the average statutory corporate income tax rate globally was above 45 percent today we are around 20 25 okay and we are saying well there should be a minimum of 15 but historically we've been way way above that okay I'll come back to that Faisal I'd like to ask you about where Saudi Arabia stand in terms of implementing this deal and I think it's relevant because there is sort of um a critical mass that's required for this deal to be successful is there a bit of uh I'll go if you go mentality I'll be very Frank with you Saudi Arabia broadly supports this there are some details that need to be sorted out but we broadly support this because uh it stands it's underpinned by the pillars of fairness this is all about making sure that value and and Taxation are are close to each other and and in that regard I think in Saudi under Vision 2030 we've been focusing on detaching ourselves from the traditional sources of revenue with our economic diversification to think about more long-term sustainable uh Revenue generation but also diversifying our sources of growth so this will as a byproduct uh push governments to think about true fundamentals of competitiveness and competition at the same time so this this will drive productivity this will drive competitiveness this will take us away from the environment that had that race to the bottom with being too attached to fiscal incentives now I agree we have to make sure everybody's at the table and listen to everyone one thing we learned in the last seven years is that voices are heard and collaboration yields results so broadly we're we're supporting this direction we agree this is a step in the right direction we feel that we have to stick to the time frame that's been set up with a multilateral agreement by mid-23 and and implementation at the start of 2024.
Matthias I'd like to go back to you so there's a lot coming at you namely that you know the one of the criticisms of the deal is that there are many carve outs for example I read on on pillar one once you adjust for all of the minimum thresholds Etc you basically end up with a very small pie of around 69 companies that will end up being taxed that's that's in pillar one and the bulk of it is coming from us big Tech firms so it is a global deal but and that from that sense a local impact uh other pushbacks we heard from Gabrielle saying that 15 is is too low and many many concessions were not given to represent African communities how do you respond to all of these well firstly I mean we've always said and we still believe that there's about 100 of the world's largest most successful multinational corporations that are in scope for for this deal and it is a very substantial reallocation of taxing rights and and pillow too as you as you've mentioned we expect now to deliver 220 billion dollars U. S per year in additional revenues mostly benefiting low and middle income countries now you know some people have argued all the way through instead of 15 we should have 20 or 25 percent but you know what I mean in the end you've got to get consensus on something that will be implemented and 15 is substantially better than zero percent and I mean what we're trying to address here is you know a history now of tax evasion and tax avoidance which has become much much easier in the globalized digitalized World economy and you know in terms of the comments that we might I mean we very much appreciate our work with Nigeria Nigeria is a deputy chair on the inclusive framework steering committee half of the members of the steering committee are developed economies more than half of the members of the inclusive framework are developing economies and you know these are the decisions in the inclusive framework are made by consensus now that makes it more difficult it makes it more involved but and we are very committed we will continue to engage with Nigeria and with others in relation to some of the outstanding issues on which we still are yet to reach consensus now we do believe though that for countries like Nigeria this is an incredibly positive deal that is on the table I'm Nigeria right now has one of the lowest tax to GDP ratios in the world 5. 5 percent 5.
56 across the Oil City on average it's um 34 across African countries in the broad it's about 15 16 now we believe that both under pillar 2 and pillow one is currently designed the Nigerian government will have substantially more Revenue available to deliver investment public services and social protection to its population now it's true I mean we can continue to have an argument in our around the world for a very long time that will never reach a landing and we remain stuck at a level where we say okay we want the perceived perfect instead of pursuing the achievable good that's on the table what I'm suggesting is this this is this is a deal that has the pros that has the most realistic Prospect of any other deal on the table to to actually make a tangible positive difference let's make it happen yes let's continue to work constructively and in good faith through some of those technical issues that are on the table but ultimately let's not don't let's not let this file let's make sure this succeeds why was there a carve out for UK Financial Services well you know in the end this is this is not a cut we're not talking about carve outs here about specific well there's a cover in terms of pillar one of regulated financial services and of extractive resources the resources sector now what we're trying to achieve here is to address the risk of tax evasion and tax avoidance in relation to very mobile activities and in particular I mean that's why the digital industry was so much in scope I mean the example that was just mentioned I'm not aware of countries that would tax at zero percent businesses in their jurisdiction with physical activity in their jurisdiction as part of I mean businesses activities that can't easily shift to another jurisdiction are not the sort of activities that get taxed at zero percent the risk of harmful tax competition is in relation to those activities where countries can structure where companies can structure their Affairs and shift the activities easily around the globe in order to get themselves responsible tax Arrangement so here I mean we're trying to achieve the right balance making sure that those companies that are generating profits in Market jurisdictions but currently are not paying their fair share of tax in those jurisdictions that we very much hone in onto those business activities to make sure that they pay their fair share of tax in those markets where their customers are able to generate their profits but we don't want to obviously create counterproductive distortions in relation to real activities and substantial activities in economies around the world Minister I think that Matthias rate a very very raised a very interesting point in that each country is coming with their own different structural setup uh the number I think you said was a as a proportion of total GDP only five percent of five and a half to six five and a half percent is coming from tax and African nations in general rely a lot more incorporation tax than on other types of taxes just to give a number that I read in 2017 African countries raised 19 of their overall revenue from corporation tax compared with an average of just nine percent for oecd members so a little bit more reliant on those corporate tax revenues well those those numbers are correct but also we believe if there is a global initiative you should come to the different sizes of countries that are on the table um why do we have only the largest enemies in under consideration why can't we have another pillar that addresses medium-sized companies which are the majority of the companies that are operating in our jurisdiction so if we sign up to this it means we're excluded from getting taxes from medium-sized companies that we're not actually by our own laws have an opportunity to collect taxes from and um and I do understand and appreciate your your situation matters that progress needs to be made and we support this initiative we're on the table we're just asking for a reconsideration of some of the commitments that have been made so that we we're not going to end up we're not going to end up if we sign up to this our analysis is we're going to end up with negative tax so taxes that we used to be able to collect from this medium-sized companies we cannot collect the majority of the companies that are in this in this in this rules now are not operating in our jurisdictions so so there's there's a need to reconsider how to make either some amendments or how to add another scope that helps us to capture more of the companies that are operating in developed developing economies like Nigeria is there any overlap between the proposal via the UN what you're pushing for at D1 level with the existing oecd proposal there is but the U.
