Thread by @alexcobham

Boom. The US has blown up BEPS 2.0: "unable to agree even on an interim basis changes to global taxation law that would affect leading US digital companies." ft.com/content/1ac262… via @financialtimes

Where does this take us? The process was already in disarray, with the non-OECD members of the Inclusive Framework openly calling out the institution's failure to take meaningful account of their views.

More than that, the OECD had already abandoned - at the behest of the US - most of the original ambition. While still paying lip service to the pledge to go 'beyond the arm's length principle', the secretariat had tried to impose a US-French deal that did little of this at best.

Our research with @icrict showed that the OECD proposal would have moved little of the profits declared in tax havens back to the countries where the real economic activity takes place; and would have primarily benefited a few OECD members, including the US, over all others

Full details and full data of our research here: osf.io/preprints/soca…

(The OECD has still to publish their data or their work, in any fashion that is even vaguely replicable - only top line numbers that are hard to square with any others)

What next? The obvious outcome is that a whole slew of countries will now introduce digital services taxes, to claim some revenues from these major tax-avoiding multinationals. No bad thing, you might think, and perhaps a small step to reduce tax injustice...

But: Digital services taxes are bad taxes. There, I said it. They don’t deal with profit shifting. They don’t ensure a level playing field between businesses (quite the opposite). They don’t address the global inequalities in taxing rights between countries.

Digital services taxes don’t address the issue of unearned rents in the pandemic. And they don’t build towards the broader reforms of corporate tax that are now urgently needed (again, quite the opposite).

What do DSTs do? They may raise some – typically small – amount of additional revenue, at a time it is much needed. They may reduce the effective policy bias to a sector that has been particularly aggressive in its tax dodging. OK.

DSTs allow governments to respond to public pressure to do *something* about tax dodging – without actually doing very much. The threat added pressure for some international progress at the OECD, but that's done now.

And the threat of DSTs certainly did nothing to prevent good proposals like that of the G24 being ditched in favour of the limited, highly complex alternative negotiated bilaterally by the US and France (until the US today threw its toys out of the pram).

The OECD process was already a farce. The pretence of the Inclusive Framework had fallen away, and the global pandemic had exacerbated the gross inequalities in access to information, and in effective voice, facing lower-income countries. Now the US too has given up.

But the ideas that drove the original optimism around BEPS 2.0 have not gone away. And nor, despite the pandemic, has the systemic tax abuse of multinational companies or the role of their advisers at the big four accounting firms. There is an urgent need for reform - and revenue

If countries are to take unilateral action, here are three options - all ultimately consistent with the broader reforms needed.

First, countries should introduce excess profits taxes. These will allow states to capture a share of the large unearned profits of companies that are benefiting from the massive state intervention of lockdowns, while all others suffer.

But these must be based not on the declared local profits of multinationals, but on a fair share of their global profits. Take the global profits above, say, a 5% return; then apportion to the country a share in line with their share of the multinational's global sales and staff

The country can then tax these exceptional, unearned, locally generated profits, at a rate of say 75%-95%.

[If all countries do this, there is no double taxation and the multinationals even get to keep a bit of their unearned profits. Not bad for a pandemic, so don't complain]

Second, countries can introduce formulary alternative minimum taxes. Leave the OECD's failed rules in place for now, awaiting some global negotiation, but draw a line on the extent to which profits can be shifted.

If the declared profits after transfer pricing, thin capitalisation etc are less than, say 80% of the country's fair share of the global profits under a unitary tax approach, draw a line there.

[Again, no double taxation unless others are taxing way more than their share]

Third, countries could move unilaterally to a full unitary system. There's no reason, in fact, not to just go the whole way. There's no need for global agreement, and no reason for this to cause double taxation unless, again, other states are taxing more than their fair share.

Last thing: whichever path countries or regional blocs like the EU choose, ensure that multinationals are required to publish their country by country reporting. This will confirm to the world that the country is not taxing more than its fair share; and reveal if others are.

And of course, country by country reporting shows the public which multinationals - and which tax advisers - are most aggressively flaunting their social responsibilities to pay tax fairly, like the rest of us. What's not to like?

I should add: where not for the OECD? At one level, they have a simple choice. They could opt to complete the exercise, in the hope that Trump will be replaced and a new administration willing to get on board with the outcome will be along shortly.

But this would be an EU deal, with few other countries able or willing to engage fully during the pandemic, and OECD members unwilling to cede real power. Would the EU want to bother, or instead push ahead itself and finally bring the CCCTB - ideally on a full unitary basis?

It's hard to see how the OECD could regain any credibility with the Inclusive Framework after putting a red line through their work programme at the behest of the US, so the only line would have to be 'come on back, the big bully has gone'. Tricky, but it might work a bit...

Alternatively, the OECD could do what we asked them to do a few months ago: accept that this process is toast, and unconscionably unfair to non-OECD members, and drop it.

It should be painfully clear to all that the negotiation of international tax rules is political, not technical; and the OECD's legitimacy, such as it is, is technical and not political. This is not the right forum.

The OECD's future role on tax could be in providing technical support to its members in a global tax negotiation. That negotiation must be at the UN - not because it is perfect, but because that is what it is for: to provide a forum for global, political negotiations.

The OECD has recently inveigled its way into UN processes, seeking a role to guide some kind of BEPS 3 for lower-income countries. This too is clearly illegitimate; but hints perhaps at a technical role on the fringes of a political process.

There are many good people working at the OECD to make international tax better. But the organisation has confirmed once again, for what should be the very last time, that it is a members' club only, and cannot be trusted to run a genuinely inclusive process.

And it is not coincidental, of course, that OECD members are primarily countries that have had empires and/or are 'settler nations' - while those in the 'Inclusive Framework' are primarily the colonised, the 'settled'.

If ever there was a time to leave this behind, it's now.