The OECD Centre for Tax Policy and Administration and the governments involved have established two pillars of reform: the first is designed to reallocate taxing rights from countries where multinational enterprises are resident – prominent among them Switzerland – to their market jurisdictions. Under the second pillar, negotiations are proceeding on the introduction of mechanisms to ensure an effective global minimum tax rate.
The two pillars are intended to make the global tax system more equitable and so at least partly attenuate the problem of multinational corporations most often not paying their taxes in the places where they generate value, but instead in the jurisdiction where they are liable to pay the least. But the devil, as usual, is in the detail: the new pillar 1 reallocation mechanisms would not benefit most economically disadvantaged countries in the global South, as most often they are neither jurisdictions of residence nor market jurisdictions of the multinationals, but are the sites of their production facilities: this is especially pronounced in the extractive industries, which would not be affected at all by the reforms currently under discussion at the OECD. Besides, only a small part of the overall profits of corporations would be reallocated. The taxing system is still highly favourable to jurisdictions of residence of corporations. Introducing such measures would therefore not mean any significant reduction in the corporate profit tax revenue accruing to Swiss low-tax jurisdictions and to the Confederation.
It is also unlikely that the rules governing minimum taxation would be ultimately binding on all the countries involved. At all events, corporations would be liable for an effective minimum tax rate that would be significantly lower the current global average of just under 25 per cent. A 12.5 per cent rate would be most likely — in other words just about the rate used by Switzerland's low-tax cantons to attract companies. For many countries in the South, which lose billions annually in corporate tax revenue, the negotiations would yet again be tantamount to jumping out of the frying pan into the fire.
In the interests of a truly global solution, the UN Committee of Experts on International Cooperation in Tax Matters is now trying to compete with the OECD and this summer launched a consultation on the topic. But the UN lacks the institutional structures that would enable its member countries to implement globally binding fiscal rules under its auspices – watch this space.