What Do Developing Countries Want From the Global Tax Deal?18th November 2021
The OECD’s global tax deal is set to roll out in 2023. And while many countries are onboard, there are still some who aren’t exactly over the moon about it: Namely, developing countries. In fact, they’re taking another stab at tweaking the deal to better suit their interests. The requests? More revenue and an exemption from mandatory binding arbitration, a dispute resolution procedure whereby arbitrators determine binding decisions that could put developing countries at a disadvantage against richer countries. Developing countries can be pretty persuasive. Thanks to former pleas, developing nations are allowed to apply Pillar One’s new tax at a low threshold—i.e. to companies earning even a small amount of revenue in their jurisdiction—and they’re not on the hook for the same withholding tax relief as developed countries. Still, they have serious concerns: Developing countries worry, for instance, that they won’t be able to afford the administrative costs associated with implementing Pillar One and Pillar Two, and they’d prefer to focus on dispute prevention as opposed to mandatory binding arbitration, the prescribed method of dispute resolution for issues surrounding Pillar One’s Amount A tax—or any issue, like transfer pricing disputes, that could alter Amount A. Compromise doesn’t come easy, of course. OECD research shows that developing countries will benefit from Pillar One more than developed countries and that all countries will benefit from Pillar Two, which should raise an additional $150 billion annually in tax revenue. And when that kind of money talks, governments and international organizations tend to listen.