Beirut, 10 May 2023--Due to corporate tax abuse practices by multinational corporations (MNCs), such as shifting profits away from countries where they generate profits to minimize their tax liability, Arab Governments suffer an annual loss of about $9 billion of revenue, according to a new policy brief issued by the United Nations Economic and Social Commission for Western Asia (ESCWA) titled “Arab Policy Choices and Financing Opportunities in a New World Tax Order”.
The brief reveals that tax incentives, which have resulted in 60% of corporate tax revenue potentials being undercut on average in the region, did not dissuade MNCs from repatriating their profits. In the meantime, MNCs maintain their operations at the minimum scale that makes them profitable, while a third of them are taxed at effective rates below the proposed global minimum corporate tax rate of 15%.
What is even more troublesome, according to the brief, is that Arab countries continue to rely on the same tax and fiscal incentives to attract investors and compensate for inherent structural deficiencies in their economies.
ESCWA Executive Secretary Rola Dashti shed light on these losses, incurred especially in middle-income countries heavily reliant on tax for revenues. “If undertaxed MNC subsidiaries pay the 15% global minimum corporate tax rate, this may generate $5.5.-9$ billion in additional tax revenues annually for the region,” she underlined.
The brief further highlights that MNC activities and associated FDI inflows have not created proportionate increases in employment. The pattern of inward capital investments remains slanted towards extractive industries and real estate, constituting about half the investments received but accounting only for 10% of job opportunities.
The brief concludes that G20-led global corporate tax reforms can only yield modest revenues for the Arab region, as the proposed global reforms remain slanted in favour of MNCs’ ultimate parent jurisdictions.
One of five United Nations regional commissions, ESCWA supports inclusive and sustainable economic and social development in Arab States, and works on enhancing regional integration.
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