The current global taxation framework is extremely fragmented and filled with inconsistencies which allow multinational corporations to pay less than their fair share of taxes in the jurisdictions in which they operate. Part of the problem is that businesses are liable to pay taxes where they have a physical presence or permanent establishment (headquarters). However, digital companies that can operate virtually across multiple countries avoid paying taxes in these countries, despite generating revenues from their activities there. Furthermore, countries can autonomously determine their corporate tax rates. In an effort to attract foreign investment and capital, countries can lower their tax rates, thus becoming preferential regimes or even tax havens. This triggers a chain reaction from other countries which, to protect their own revenues, also lower their tax rates, prompting a race to the bottom. The G20/OECD Inclusive Framework is a multi-country platform that was established to negotiate the standards of a global taxation system that will curb harmful tax competition and tax avoidance by multinational companies, especially those that operate digitally. In July 2021, the Inclusive Framework published the Two-Pillar Solution to Tax Challenges Arising from the Digitalisation of the Economy, with 136 countries as signatories. However, a number of African and other developing countries were not part of the Inclusive Framework, with some countries refusing to sign the agreement on the basis that the G20’s proposed minimum corporate tax rate of 15% is too low. Some tax justice campaigners and other developing countries have rejected the deal, claiming that it too narrowly benefits rich countries while also ignoring the key considerations that were raised by G24 members. For the agreement to be successful and an effective, global solution to the problem of tax avoidance, the Inclusive Framework and G20 must respond to the grievances of developing countries and attach equal priority to their economic needs.
