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Which Developing Countries are Opting Out of the Global Tax Deal?

26th April 2022

While the world has been watching to see if the U.S. and the European Union will adopt the OECD’s two-pillar global tax plan, developing countries have openly voiced concerns. Many have expressed a need for more revenue and also, 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. Many have wondered if the implementation costs would outweigh the benefits, and for Nigeria, Kenya, Pakistan, and Sri Lanka, the answer is yes. In fact, they have officially opted out of the global tax deal altogether.  

One issue for Nigeria is Pillar One. Despite the OECD’s economic assessment, Nigeria isn’t sure it would benefit the way the OECD has modeled. Mandatory binding arbitration is another concern for both Nigeria and Kenya. They worry about losing power over tax issues that must be resolved in resident countries. While the two-pillar agreement was negotiated under the Inclusive Framework, a large part of negotiations happened between the G7 and G20—and that lack of transparency became another dealbreaker. The number of MNES in scope eliminates potential revenue from many companies operating in Africa. Oxfam estimates that the new tax deal would result in $8 billion in annual revenue for low-income and middle-income countries, but for Nigeria, Kenya, Pakistan, and Sri Lanka, that doesn’t justify the cost of implementing the new plan.