SO, they have done it! On the 8th of October, 2021, the OECD declared with much fanfare that a new global deal has been agreed upon by 138 members of the Inclusive Framework (including India)- "International Community strikes a ground-breaking tax deal for the digital age". Apparently, a new international tax order will be in place from 2023 which if the claim of the OECD is to be believed has been arrived at by all these countries/jurisdictions working together on "an equal footing" in the so-called Inclusive Forum, of course, under the aegis of the OECD. This has been touted as the deal of the century and most of the headlines reported that a global minimum tax of 15% has been agreed upon. How this more than a decade long labour of what the OECD termed at the beginning as action point 1- Addressing the tax challenges of the digitalised economy, raising hopes of a genuine change in the international tax order, metamorphoses in two pillars and then transforms primarily as an agreement for a minimum tax will be a fascinating study. But, going by the reports which the OECD wants us to believe, this is a great victory for the international tax order and will save the world from the scourge of tax havens. Before pointing out some holes in the tall claims of the OECD, I have to express my disappointment with the negotiators from the developing world some of whom are giving full-throated support to the end result.

Till now, the developing countries of the world that, barring a few, were all colonies of the western world, used to complain that they were not at the table when the so-called international consensus regarding the division of taxing rights between the capital exporting countries and the rest of the world were finalised in the 1920s. Needless to say that such rules were heavily tilted in favour of the colonial countries of the west who retained all the important sources of revenue with them- the residence or capital exporting countries on some pretexts or the other. It is a different matter altogether that the capital of these countries was accumulated in the first place through the exploitation of the resources and labour of the people of the colonies. As I write this, coincidentally I come across a Guardian article relating to climate change (Capitalism is killing the planet - it's time to stop buying into our own destruction) where it is estimated that over the course of 200 years, the British extracted from India, at current prices, USD 45 trillion and they used this money to fund industrialisation at home and the colonialization of other countries, whose wealth was then looted in turn. Similar estimates must be available for the other erstwhile colonial powers, that are now known as the developed countries or the Global North.

So, I am deeply disappointed by the stand of the lead negotiators from the Global South, in not taking more robust stand against the OECD hegemony. China has just become the richest country in the world albeit not in per capita term and if China is not on board, any international consensus is not possible any longer. India has long raised the inequities of the current system in various for a and it is surprising to hear endorsement of the OECD position in various webinars. Enlightened self-interest is the name of the game in any diplomacy and international tax is very much a part of international diplomacy and one would have expected much more nuanced position. Pascal Saint-Amans of the OECD is of course all praise for the lead negotiators. But I do not find any gain either in terms of tax revenue or in the matter of simplicity of administration or in the matter of reducing the disputes that invariably arise between the tax administration and the wily multinationals aided and often abetted by the consultancy firms who compete with each other in being more loyal to the master, i.e., the OECD, an institution that itself is subject to the dictates of the USA. So, you know who the real winner of the game is! If the beguiling statements coming out of the OECD is not challenged, in future it will be difficult to take any stand contrary to what the OECD says. So far, I have been able to silence many a critic against the so-called aggressive stand of the Indian tax officials and not following the OECD standards by insisting that the unjust international tax system was an imposition from the west since we were neither consulted nor were on the table. Now, it will not be possible for India to take a different stance from that recognised by the OECD since these administrations will say that you were a party to the agreement and cannot complain against the unjustness or otherwise of the same.

In order to sell its products and ideas to the developing countries and solidify its reputation as the go-getter, the OECD did a difficult manoeuvring job. It was given a mandate to finish its job by a certain unrealistic time frame. It has done its job. So, kudos to the OECD Secretariat on that score! It is a different matter altogether if the developing countries have been short changed in the process.

It's been a long time now that the global financial agenda is being set by the USA and its allies. The grouping subsequently got formalised as G-7. G-7, however, does not have a secretariat and all its tax related decision are done at the OECD, which is a natural phenomenon since the mandate of the OECD as a club of rich countries is to look after the interests of its members. It is only at the end of the millennium that a larger group comprising the G-7, the EU and some emerging economies were taken on board and the G-20 was formed. G-7 never withered away. But for some years the prominence was given to G-20 in financial matters.

When the BEPS problem exploded in the wake of the financial crisis, people might have forgotten that the OECD was initially working on its own in designing the solutions of some of the problems relating to double non-taxation. Later, to make it really effective, the G-20 was brought in. The formal name of the project was G-20/OECD BEPS Project. As in the case of G-7, G-20 also does not have a Secretariat and the tax related work is entrusted to the OECD. The OECD thus gains in status and virtually becomes the norm-setting organisation.

When in 2013, the OECD finalised its 15-points action plan, it put addressing the tax challenges of the digital economy as Action Point 1 meaning that maximum importance was given to this issue. Yet, when the OECD finalised its reports in 2015, it was this point that was kept pending mainly because of the resistance from the USA. A task force consisting of members from a few countries was to keep working for a solution. The task force was headed by the representative from the USA. The USA was never comfortable with most of the BEPS work at the OECD as it essentially became a battleground for reconciling the conflicting interests of the US MNCs and the EU administrations. Neither in India nor in China or for that matter in the developing countries, tax avoidance by multinationals became a rallying point. In fact, Courts in India took the complicated tax structures intentionally adopted by the MNCs for granted. In fact, Courts took the inevitability of the source tax base erosion for granted with the Supreme Court coming out with the astounding statement of treaty shopping as a virtue for developing countries apparently in the interest of foreign investments. It was subsequent to the action plan published by the OECD that a limited interest is seen in the lower judiciary in India on the issue. Thus, it was essentially the European countries that should be credited with realising that their markets were exploited by the US companies without paying any taxes there. The boycott of Starbucks and picketing in the stores by people suffering from austerity measures had added urgency to the issue and the OECD was forced to act.

The Indian tax administration however have all along pointed out the fallacy of many of the OECD arguments including in its insistence of keeping the concept of Permanent establishment as the main fulcrum of establishing the nexus for taxation and also the use of the OECD transfer pricing guidelines for allocation of profits. Given a chance to participate, the first lot of negotiators did put up a spirited defence of the source country taxing rights and forced the OECD to reconsider some of its basic tenets- that the concept of permanent establishment in the digital age is not fit for purpose and that demand of goods and services where the same is consumed or used should also be a factor for profit allocation. To a certain extent there is also a grudging recognition that the multinational group is essentially a single entity thereby making a dent in the separate enterprise theory dogmatically followed by the OECD so far. The OECD was also forced to backtrack on its original stance that the scope of work on BEPS will not involve a relook at the inter-se taxing rights of nations.

In 2015, after having arrived at the 15-point action plan without any participation from more than 100 of the developing countries, the OECD formed the Inclusive framework and invited members from other states and jurisdictions to sign up on its solution. The privilege of sitting at the table would cost the members Euro 20000 per year ad they also had to commit to adopt all the minimum standards already set and such other commitments. That would also give an aura of respectability and rid the OECD of the charge of exclusivity. But why, more than 100 developing countries flocked lemming like to sign up to the IF is not clear to me. Perhaps it was diplomacy perhaps, it was the fear that if you are not at the table, you will be the menu. But being at the table, does not mean that these countries could effectively participate. On this point, there is a very illuminating study conducted by the ICTD in a paper, provocatively titled- "At the table, off the menu?" and those interested may refer to the same for more on this issue. Another interesting aspect of the IF membership, is that there are at least 30 tax havens in the list and many of these are not even full states, these should be called jurisdictions- Bermuda, Jersey, British Virgin Island, Cayman Island etc. This is the old colonial ploy of cramming a decision-making body with cronies to ultimately have its way.

The fig-leaf of consensus was already broken when in a surprise move, it is the Secretariat that came up with a draft unified Approach in October 2019. It was not as if the delegates of various countries negotiated and put forth a solution that could be improved by the Secretariat. It was the other way round. The Secretariat put up a draft paper that was then to be debated by the delegates and a final solution was to be reached.

Under the Secretariat proposal, a small amount of the non-routine profits of the MNC group called amount A was to be allocated to the market jurisdictions on a formulary basis and an amount B would be would be allocated for the routine distribution functions. There was safe harbour provision and the scope was limited by providing the application of the new rules restricted to certain sectors alone. Taking a cue from the US GILTI, a pillar 2 was also designed that would give taxing rights to the country of residence if the components of the MNC did not pay a minimum tax in tax havens and jurisdictions where many, if not most of the MNCs were having subsidiaries- a kind of a CFC rule. Of course, there would be safe harbours and in respect of amounts and sectors.

In the meantime, many European countries had already started imposing digital services tax on the digital companies most of whom where American companies. India also, (in hindsight very wisely) imposed EQ levy. The Trump administrations retaliated by taking actions under its trade act and the USA more or less abandoned the BEPS project, creating a piquant situation for the OECD. A global deal without the USA was unimaginable.

The change in the US administration altered the calculus even though the Democrat majority in the US house and Senate is razor thin. The Biden administration not only decided to participate but also take the initiative and took back the leadership position. In the process, the consensus process of the IF had to be sacrificed to keep USA on board.

The fig leaf of the 136/138 countries working on an equal footing was removed when G-7 took the lead and at its meeting in London, already finalised the most controversial elements of the unified approach with the following statement:

"Shaping a Safe and Prosperous Future for All

16. We strongly support the efforts underway through the G20/OECD Inclusive Framework to address the tax challenges arising from globalisation and the digitalisation of the economy and to adopt a global minimum tax. We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises . We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies. We also commit to a global minimum tax of at least 15% on a country by country basis. We agree on the importance of progressing agreement in parallel on both Pillars and look forward to reaching an agreement at the July meeting of G20 Finance Ministers and Central Bank Governors."

The G-20 dutifully complied with some members like India making some mild noise about finding a just solution. "(…) India is in favour of a consensus solution which is simple to implement and simple to comply. At the same time, the solution should result in allocation of meaningful and sustainable revenue to market jurisdictions, particularly for developing and emerging economies. (…) (PIB 2 nd July, 2021)

It was then that the onus was on the so-called Inclusive Framework to produce a solution by October, 2021. The IF has indeed come out with a proposal that was announced by the OECD and the world over as the herald of a new era in international taxation. So, what changed between July and October? Nothing really substantial. In July it was mentioned that the minimum tax agreed was to be 'at least' 15% under Pillar 2. In October, it has now been confirmed that the rate will be 15%. The more contentious issue about Amount A, the residual profit to be allocated to market jurisdictions has now been settled at 25% while earlier it oscillated between 20 and 30%.

We should note that even at that stage (between July and October) the developing countries represented by the G-24 had asked for a higher percentage of total profits (not less than 30%) to be deemed as routine profits to be available for reallocation. This was particularly important since only a handful of companies will be subject to the regime as insisted upon by the USA and any reallocation of taxes to the developing countries to be meaningful, the profit percentage available for redistribution had to be higher. Besides, these countries also stoutly resisted the insistence of the OECD of linking the wee bit extra allocation to mandatory and binding dispute resolution, which is nothing but mandatory binding arbitration advocated by the OECD in another form. The consuming market economies also wanted the amount B which was originally envisaged as a compensation for the routine distribution functions performed by the MNCs in the source State. None of these demands of the developing countries have been met.

So, what really changed between then and now is the manner of decision making. We have to note that the USA is not a member of the Inclusive Framework. Yet, emboldened by its backing the OECD's Pascal Saint-Amans chucked the consensus approach although he keeps on rendering lip service to the equal footing.

If indeed as is claimed by him, all the IF members were working on an equal footing and on the basis of consensus, theoretically, it would have been possible for any IF member to block a proposal. But the rules seem to change according to the whims and fancies of the powers that be and now we are told that consensus is not necessary if all the big players are on board. It is thus that the largest country in Africa, Nigeria and another important member from Africa, Kenya are not on board an yet we are going ahead with the implementation of the Secretariat proposal.

One is surprised by the Indian endorsement of the proposal as well. Many commentators have already pointed out that the gain to the Indian tax kitty from the new proposal would be ephemeral if not negative. Besides, we are indulging in parting with our sovereign right to set our own source rules and our own tax rules.

Many of us have already forgotten that in respect of the Action point 1, the countries were veering towards an agreement around significant economic presence as a new nexus but the OECD task force backed down because of the insistence of the USA whose companies were the main culprits in the matter of tax base erosion. For the interim, it was the OECD that suggested an excise levy which was later rechristened as equalisation levy. It was only then that the equalization levy was introduced in India and it was a year after that the concept of significant economic presence was also introduced in the domestic law although it would not apply in treaty situations. It is true that Equalisation levy was introduced as an interim measure till a consensus solution is reached. The OECD solution cannot be called a consensus solution since the premise that the solution should be for all digital companies is now being whittled down to just a handful of companies. Apparently, the developing economies insisted that the non-application of various DSTs should then be restricted to the non-application to only the in-scope companies. But that again has not been accepted.

The only positive aspect of the project is the participation of advocacy groups, in particular of the Tax Justice Network, the BEPS Monitoring group, the South Centre. ICRICT has also contributed in voicing the concerns of the under-privileged countries. In fact, the country-by country reporting was introduced at the insistence of the TJN and is now being touted by the OECD as helping the developing countries in garnering more revenue. Even then only a few of the devaluing countries are actually in a position to receive and make use of these reports. In answering the question as to how the developing countries will benefit from the two-pillar solution, the OECD goes into a long spiel about how some of the concerns raised by the ATAF were taken on board but is absolutely vague about the exact gains to the developing countries.

The minimum tax is a part of the so-called Pillar 2 that indulges in a complicated calculus of a domestic tax law-based Income Inclusion Rule and Undertaxed payment Rule and a treaty based Subject to tax Rule and stipulates that some in scope MNCs should pay the difference between 15% and the effective tax rate on the income taxed elsewhere to the jurisdiction where it is headquartered. There is also a threshold and most of these companies are based either in the USA or Europe. So, the gain, if any from out of this deal will be ephemeral for the developing countries.

The frustration of the emerging economies has been nicely summed up by the Nigerian Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, who said that many developing jurisdictions including Nigeria, may experience negative or reduced revenue collection from the implementation of the project as propounded by the OECD. According to a report in 'This day", September 21,2021, she is reported to have said: "We had hoped that all jurisdictions would be participating in the project on an equal footing and that the agreed solution would benefit all while preserving jurisdictions' existing taxing rights which are not aimed at digital business, and that the project would provide universally acceptable rules, by consensus." Explaining why Nigeria has not joined she said: "Simply put, Nigeria seeks to prioritise the importance of securing a fair deal that provides for equitable global re-allocation of profits to all market jurisdictions, and it is our view that the agreement has not met this objective." I tend to agree.