The OECD announced that as of November 4, 2021, 137 countries and jurisdictions signed onto an Inclusive Framework to reform international tax rules by redistributing tax on an equitable basis.
The plan is to reallocate the applicable tax on profits from countries holding some 100 of the world’s largest MNEs (multinational enterprises) to countries which deserve a fair share as determined by the bureaucrats at the OECD. Essentially, a welfare plan to gift tax money from the treasury of the most productive countries to the treasury of favoured unproductive countries of the social justice political movement.
Following years of intensive negotiations to allegedly bring the international tax system into the 21st century, the OECD finalised what it calls an Inclusive Framework with the Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.
Under Pillar One, the taxing rights of one country to more than US$125 billion of profit are expected to be reallocated to more deserving jurisdictions each year. The theory behind this is that the developing country revenue gains as a relative proportion of existing revenues are expected to be greater than those in more advanced economies. The problem is that this does not justify robbing Peter to pay Paul.
Pillar Two introduces a global minimum corporate tax rate set at 15 per cent. The new minimum tax rate will apply to companies with revenue above EUR750 million and is estimated to generate around US$150 billion in additional global tax revenues annually. The OECD makes the patently absurd claim that additional benefits include the stabilisation of the international tax system and the increased tax certainty for taxpayers and tax administrations.
The timeline is for a signing of a multilateral convention and implementation during 2022, the OECD will develop model rules necessary for bringing Pillar Two into domestic legislation during 2023. The OECD is expecting to become the official supranational tax administrator with the power to ensure the rules can be effectively and efficiently administered.
As of this writing, there is no serious pending legislation in any major jurisdiction agreeing to give over its tax sovereignty either to any other country, or to a foreign governmental or non-governmental organisation. I think it is fair and reasonable to say that the United States congress is never going to give up even one penny of its rights to tax sovereignty.
Military Conflict, Cyber Attacks, Tax And Trade Are Part Of Global War
Looking around the world, there is a war is going on between China, Russia, North Korea; Islamic extremism against the rest of the civilised world. The European Union has its own political and economic problems, as highlighted by Brexit. History teaches us that totalitarians, authoritarians, dictators, and despots take power. And their objective is to take power, capital, and resources from Western Europe, the United States, and other nations they can extort, steal from, or plunder.
The Ukraine’s incredible defence against Russia vividly demonstrates that people are willing to die for the sole idea of maintaining their national or local identity, sovereignty, and personal freedom. Similar violent conflicts are playing out in many other places throughout the world. Unlike the supernationalists like the OECD, which fanaticise the creation of a borderless world, the undeniable reality on the ground is that people go to war to protect their borders and control of their lives.
The unilateral declaration of war by Russia highlights that the OECD, as well as the UN and all the international organisations devoted to bringing a vaccinated, carbon- free world together in peace, are impotent; mere functionaries performing a Kabuki dance on the world stage.
The OECD in its quest to replace national sovereignty for a new world order has undermined legitimate efforts to facilitate the world economies working together. Its propaganda of proposing global tax harmony is merely another malevolent ploy in the strategy of the global elite to gain control over the free-market economies of the United States and European countries.
Does the IMF or World Bank provide any benefit to the major industrial countries of Europe or the United States? What have any of the international organisations or non-governmental organisations done to support the national economies which enabled the formation of multi-national corporations? Who actually controls the shadow government of the administrative state?
The idealistic dreams of the Great Reset, venerated as holy beliefs by the World Economic Forum, Davos, Bilderberg, and the Business Roundtable are collapsing under the reality of the events of today. They are not wiser than the average man. Their ship of dreams has run aground on the rocks of reality.
The dilemma for the West is twofold. First, as observed by various bloggers, Europe and the United States cannot win a geopolitical conflict lasting years or decades without the certainty and sustainability of industrial economies powered by oil, gas, and coal. Second, under the guise of stopping the climate from changing and the Covid-19 crisis, supposedly democratic government, from the federal level right down to the local schoolboards, have resorted to acting like authoritarians and tyrants.
Normally apathetic and obedient middle-class citizens from every country in the free world are vociferously protesting against their own government. There is not going to be harmony of any kind between the countries and jurisdictions of the world when the people perceive that their own government is not credible, trustworthy, or protecting individual freedom.
Sovereignty Over Taxation Is Politically Sacred
The fundamental effort of government is getting enough money into the Treasury, by hook or by crook, and then spending it to get the politicians re-elected, pay for the military that keeps them in power, or both. Beyond that, politicians redistribute money to supportive voting special interest groups to keep the voters dependent on government. It is a myth, an audacious fraud, that they are using the vast governmental administrative state for benefit of the people. The private sector could perform those same services easily with much more efficiency at lower cost.
The very idea that those in political power would give up the lifeblood of that power to some anonymous and unaccountable international bureaucracy is disconnected from history’s lessons learned over the last ten thousand years. Politicians know that staying in power takes endless amounts of money. Money, of course, is just another word for capital.
Why Countries Compete For Capital
As its most basic economic reality, every country’s prosperity depends on expanding productivity. Productivity requires the use of labour, resources, management, distribution, and the capital to underwrite and pay the costs. Those costs include tax impositions. Net cash flow after paying all costs is the lifeblood of a business. In turn, it means that capital is the lifeblood of a productive national economy. Without capital there is no capitalism. Whoever controls the decision on the allocation of capital is the real power—the Shadow Government-- in any country regardless of the political system. The OECD is merely another front for those who really exercise power.
Some few in political power roles know that creating a business-friendly environment allows internal capital formation. Dubai is an example of this. In turn, foreign sources of capital are enticed to provide for additional capital needs. Capital is mobile. Highly mobile.
For some countries, like Russia and China, plundering other countries’ sources of wealth is part of their national economic policy. The idea of the OECD persuading any major industrial countries to voluntarily, in the name of social justice, give up competing for capital, or plundering, is delusional.
Conclusion - Is There An Alternative?
Let us agree on the proposition that a functioning government is necessary. Even a free-market needs rules and an enforcement mechanism. Paying for that involves government imposing tax. It’s never a happy event. Tax impositions mean that there is always the threat of coercion. Every tax system has its difficulties. There is no perfect tax system. As a result, in choosing a tax system, it becomes a question of choosing the least bad system.
A tax system should be based on economic realities. For example a multinational enterprise produces a product which is then sold at a price above costs. That gain is called productivity. It is productivity that expands an economy.
All the money going into producing the product, from all its resource and service providers, goes into the cost. Since everyone needs net after-tax cash flow to support their lifestyle, the product cost includes the tax paid by everybody in the chain. The result is that all prior and current costs, including tax, are contained in the price paid by the consuming buyer. Effectively, no matter the form of tax, income tax, excise tax and all the rest, they are all merely a tax ultimately paid by the consumer. However, where the decision to buy or not to buy is voluntary by the taxpayer, then so is the payment of tax.
A tax system where tax is more willingly paid requires less coercion, intrusion, surveillance, and mind-numbing complexities. It becomes a tax system which is reasonably administrable by government and compliable by taxpayers.
If the goal is to fairly allocate tax impositions for each country to get its fair share, then it’s logical for each country to tax from its direct participation in the sale of goods to a buyer which creates economic productivity. If world-wide tax harmony, and national harmony as well, is the true object of the exercise, then it is actually achievable by the major industrial countries using a consumer tax system. Of course, that means there is no purpose for the OECD or its tax harmonisation Inclusive Framework. That alone would be of great benefit to the world.
Denis Kleinfeld is highly regarded as a lawyer, teacher and author. His private legal practice, Kleinfeld Legal Advisors, is located in North Miami Beach Florida. He is an Adjunct Professor at the LLM Wealth and Risk Management Program, Texas A & M School of Law. His private practice focuses on strategy planning of domestic and international tax, legal, financial, matters involving the wealth and risk management for private clients and private businesses. He is co-author of the two-volume treatise, “Practical International Tax Planning,” 4th Ed. published by Practicing Law Institute. He is the contributing author on Foreign Trusts published in “Administration of Trusts in Florida” by The Florida Bar and authored chapters for the American Bar Association’s in “Asset Protection Strategies: Wealth Preservation Planning with Domestic and Offshore Entities Vols. I and II.” He is a contributing author to the “LexisNexis Guide to FATCA”.