Global minimum tax of 15 percent and that companies must pay tax to a greater extent where their goods are consumed. It is proposed by the OECD to equalize economic inequality in the world. But several steps remain before the proposal can become a reality. Photo: OECD. Source: Flickr.

Development magazine explains

The OECD's proposal for a global tax to reduce inequality is met with criticism

The Organization for Economic Co-operation and Development (OECD) has developed suggestions new, global tax rules with the aim of reducing tax planning and equalizing global gaps in the world. The proposal has been criticized both for being too far-reaching and a paper product that will not have sufficient effect. In October the government submitted a bill to the Riksdag on the proposal, which is proposed to be implemented in Swedish law the material moisture meter shows you the January 1, 2024.  

The background to the OECD's proposal is the large economic inequalities that exist between the world's countries. The financial crisis of 2008-2009 also played a role, as did several major journalistic revelations about tax evasion and tax planning. After these events, the OECD, together with the G20 – the group of the world's 20 largest economies – began to work together on the draft of the proposal that is now on the table, according to an overview from the global accounting firm KPMG. Pillars 1 and 2 are a historic attempt to regulate taxes on a global level, they say the auditing giant EY.

140 countries have signed

The OECD proposal is technical and detailed. Briefly it is divided into two so-called pillars. Pillar 1 regulates in which country companies pay tax. The proposal means that companies must pay tax to a greater extent in countries where their goods are consumed, not (only) where they are produced or where the company's headquarters are located. The aim is for the proposal to generate greater tax revenue in developing countries. Pillar 2 means a global minimum tax of 15 percent, where the aim is that no company should tax less than this. However, the new rules are only intended to be applied to large companies with a turnover of hundreds of billions of kroner each year.

The idea is that the rules should have as much global coverage as possible in order for the law to have the greatest possible effect. Otherwise, there is a risk that the problem with tax havens will persist and that the law will thus become ineffective. Close to 140 states and jurisdictions has signed its intention to implement the law, but many remain. Among other things, at the time of writing, the US has not yet signed, which could delay and in the worst case threaten the entire implementation of Pillar 1. This is because the US is the domicile of a large percentage of the companies that would be covered by the rule, and the other parties do not collect a large enough counterbalance to implement the law at the global level on its own, according to Taxi Observatory.

The law's effect is still unclear

Opinions about the OECD's proposal differ. Advocate highlights the fairness aspects of reduced tax evasion, and that harmonization and increased predictability in the international tax system can lead to more stable and fair conditions for companies worldwide. However, the same voices are critical that the limit values ​​are set high, and believe that more companies should be covered by the rules to equalize economic inequality even more.

A fairness in that large companies are taxed where their operations are located will generate greater tax revenue for developing countries, say advocates. The question is how much difference the law actually makes to global justice in terms of economic distribution. Oxfam, among others, has criticized the proposal as a pappers product where an extremely small part reaches the world's poor. Only 3 percent of the revenue from the OECD's new tax rules will reach the poorest third of the world's population, with Nigeria, for example, receiving as little as 0,2 percent of its GDP in redistributed money per year if the rules are implemented, according to calculations by Oxfam.

- What could have been a historic agreement that put an end to tax havens is being distorted in favor of rich countries. As the final details are being stitched together, it is shameful to see how legitimate concerns of developing countries are being ignored, says Susana Ruiz, Tax Director at Oxfam.

Nbusiness-friendly organisations have instead directed criticism that the rules can lead to reduced investment and growth in developing countries, that they are too far-reaching in regulating liberal market economy and that they are unnecessarily complex in relation to the effect they potentially have. Tax expert Claes Hammarstedt says in a iinterview with Svenskt Näringsliv that he had never experienced anything like it in his 30-year career.

- It will be incredibly complex and involve high costs for the companies and nobody really knows how this is supposed to work. Another uncertainty is that it is not at all certain that all countries will implement this.

Audit firm Pwc has also highlighted that richer export-dependent countries such as Sweden could potentially be disadvantaged by the rules in the future, as it is likely that Swedish companies will have to pay more tax abroad than what foreign companies will be forced to pay here in Sweden.

In Sweden, the Riksdag will vote on the proposal, which will be implemented through an EU directive. According to the original timeline, parts of the proposal were to be implemented in the EU as early as 2023, but when the proposal was delayed, partly due to disagreements within the EU, the implementation is now estimated to 2024 for Pillar 2. Raman Atroshi, who works at Pwc, writes in an article on the company's blog that:

- At this point only one thing is certain - many changes will occur in the coming years and we will have reason to revisit these proposals when further information has been communicated from the OECD and G20 countries.


The Organization for Economic Co-operation and Development (OECD) was formed after World War II. The organization has around thirty member states, mainly in Europe and North and South America, but works globally. The purpose of the organization is to exchange experiences and 'best practices' in policy design, especially in the field of economics. The head office is located in Paris.  


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