Davos 2023: Is Global Tax Reform Stalling?

This transcript, generated from speech recognition technology, has been edited for web readers, condensed for clarity, and may differ slightly from the audio.

Joumanna Bercetche, Anchor, CNBC: Welcome everybody to our panel. The title of today's panel is: Is Global Tax Reform Stalling? I'm going to give you a little bit of context before I introduce all of our panellists today.

In October 2021, almost 140 countries in the world - it isn't quite 140, it was actually 136 to be precise - agreed to sign up to a historic OECD agreement on international tax reform, which aims to ensure that multinationals pay their fair share of tax and help countries prevent corporate tax avoidance and evasion. It had two pillars. The first pillar, pillar one, which gives market jurisdictions further taxing rights on digital profits. Pillar two, which is essentially a minimum corporation tax of 15 percentage points for multinationals so long as their revenues meet a certain minimal threshold. Now, I thought it was interesting that this week the OECD put out new numbers saying that pillar two so the minimum corporation tax should result in annual gains of over $220 billion. Annual gains. That is versus their initial estimates of $150 billion. So, it's been revised upwards. Pillar one, the digital tax, is expected to lead to annual global tax revenue gains of between $13 to $36 billion of profits of about $200 billion as well. Now, it must be said that in December the EU also reached an agreement in principle to implement pillar two in a way that is consistent and compatible with EU law.

So where do things stand today? How much progress has there been since October 2021? Are we going in the right direction? What is the future for this tax proposal? Those are some of the questions that I hope to get answered during this panel today.

So, I'm going to start off by introducing our panellists. First of all, we've got Mathias Cormann, the Secretary-General for OECD. To his right, we have Zainab Shamshuna Ahmed, the Minister of Finance, Budget and National Planning of Nigeria. Welcome. We have Gabriel Zucman, the Director of EU Tax Observatory in France, and Faisal Alibrahim, the Minister of Economy and Planning of Saudi Arabia, Young Global Leader as well.

Mathias, I'd like to start with you. First of all, can you just give us an update on the progress that has been made since October 2021. How would you characterise the transition from commitment to actual implementation? And of course, I'm guessing that the EU commitment in December was a step in the right direction?

Mathias Cormann, Secretary-General, OECD: Well, look, I remain quietly optimistic that we will be able to reach the targeted implementation timetable of 2024 for pillar one and pillar two. I mean, in terms of the opening question, is global tax reform stalling? My answer to that would be no. But of course, global tax reform is difficult to achieve. It was never going to be straightforward. There was an agreement in principle in October 2021, which was indeed historic. It was a commitment to ensure that our international tax arrangements in a digitalised and globalised world economy are fairer and work better, and in particular that there was a fairer distribution of tax revenues into market jurisdictions. Now, in relation to pillar two, I mean you've mentioned it, 27 EU member countries have now agreed by unanimous consensus to implement the agreement, which comes on top of countries like the UK, Switzerland, Indonesia, the UAE, Singapore, Korea and various others. And so, I mean I believe that there is now very significant momentum around the implementation of the pillar two, and pillar two is designed in a way that makes it self-perpetuating because it gives the right to those countries who legislate the pillar two to collect revenues up to 15% of profits that haven't been collected elsewhere for those countries that have legislated that deal to collect those revenues. And so, it really becomes a matter of self-interest for countries that haven't yet legislated pillar two in terms of their desire to protect their own revenue base, to follow suit and also press ahead with legislating pillar two.

In relation to pillar one, that's the most complex work. It requires a multilateral convention. We hope that the drafting process of the multilateral convention can be finalised by the middle of this year. There's still some, you know, various areas where there is technical discussion. Some public consultation process is currently underway, for example, on issues like how do we treat withholding taxes. Those who pay tax in market jurisdictions say that withholding taxes are taxes that they paid, that should be taken into account. Others say they were not in scope. And really, if withholding taxes are part of the equation, then we should adjust the amount, I mean, it becomes very technical very quickly. But there are some discussions around, you know, obviously for those companies that would be required to pay more tax in market jurisdictions, the upside opportunity and the interest for them is to get tax certainty where there is a more consistent approach internationally. But then that means that those countries who have or who might be considering to pursue unilateral digital services taxes, that they either should not proceed or indeed withdraw those digital services tax. So the conversations are on this and, you know, various other aspects. I'm not going to bore you with all of the detail unless you have some more questions about it.

The bottom line is this: a multilateral agreement that is swiftly, effectively and widely implemented is clearly in the interest of the global community. It's the best deal that is currently on the table. We've got to be very careful not to let the perceived perfect be the enemy of the achievable good that is currently on the table. And my proposition to all is that this is really the best opportunity the global community has right now to improve the way our international tax arrangements work in a digitalised globalised world.

Joumanna Bercetche: You were just listing the countries that have made significant progress. One country stands out for not being there and that is the US. Were you disappointed that the US, who were so instrumental in pushing this agreement forward, didn't actually include it in the Inflation Reduction Act? I think included something similar, but it doesn't subscribe to the same elements.

Mathias Cormann: Well, the United States has legislated a form of minimum tax. You're right. It's not entirely consistent with the provisions of the global minimum corporate minimum tax as designed and as agreed in the context of the OECD process. But part of the work that is currently on the ways that put in place appropriate bridges between different regimes to make sure that there is consistency in application. The democratic processes in the United States, in the same way as in other parts of the world, will of course continue to play out. And we would like to see all the countries that have signed onto the agreement to ultimately to fully implement both pillar one and pillar two — once the multilateral convention is in place for pillar one, and indeed pillar two can happen as of now.

Joumanna Bercetche: Minister, I'd like to turn to you now. Nigeria was one of the holdouts on the deal. Can you explain to us why and also what prompted Nigeria to go to the UN on behalf of other African nations to put forward a motion at the UN level to go ahead and do their own form of international tax reform?

Zainab Shamsuna Ahmed, Minister of Finance, Government of Nigeria: Well, let me thank you for inviting me to be part of this session and also for the opportunity for us to speak to how concerned we are about this process. And to emphasise that Nigeria is still on the table, still engaging in the process and just seeks to have some improvements that need to be done to consider how this rule affects developing countries like Nigeria.

The original intention, we were told, was to allow taxation of digital enabled businesses in market jurisdictions and to understand the main challenges and obstacles facing implementation of tax agreements across the world. The question that we need to ask now is has this key objective been achieved by this arrangement, especially considering the substantial percentage of digital enabled businesses that have been excluded by this group. For Nigeria, the answer is we cannot sign up to this in the way it is now. But if there is improvement, we are on the table and we are interested in still joining.

The reasons for us are: one, the negotiation, contrary to the agreed rules, was not based on equal footing. The laws that evolved did not carry the views of a lot of countries along. So mostly what is much is the views of the developed economies to the exclusion of most of our own countries. The current agreement also does not deliver on the underlying objective, and the rules that are developed are so complex that it is difficult for us to cope with the implementation. So, the rules need to be simplified. The pricing and the implementation are beyond our capacity to cope with right now, and also the narrowing of the scope of the rules that medium sized digital enterprises that dominate our markets are excluded. Most of the digital enterprises in our countries are the medium size ones. They are not the very, very large ones. And the outcome of this means that there will be also discriminatory taxes within our own jurisdiction. So, we will not be able, if we sign up, will not be able to tax these medium size and small sized businesses, while we are taxing similar companies that are Nigerian companies operating in the same market.

So, these are things that are important to us and need to be looked at and maybe some variation of the rules or maybe some stratification of the rules to meet the needs of developed countries. The agreement also seeks to prevent our countries from taking any step to tax thousands of out-of-scope digital companies. And for us, that's where most of our revenues are right now.

So, we have issues that need to be looked at and we hope that the rules that are currently designed to be pro-developed countries will take into account the needs of our countries, for example, the income inclusion rule and the ordering of the pillar two, which ensures that little or no taxation right is preserved for the source countries. With this unfair design of the rules and the limitation of the scope to subject to tax rules, the [inaudible] that will be used by developed countries, will simply be used to mop up tax taxes from our countries and we will end up with very little or nothing at the end of the day.

So, these rules are important, to have global rules, but it's also very important that the rules should be fair, and the rules should encourage tax equity and as much as possible, accommodate the various variations of countries that are sitting on the table.

Joumanna Bercetche: Very clear. I will give you a chance to respond. But first, I want to go to Gabriel. You've done a ton of work on global taxation. In November last year, you published a paper called Global Profit Shifting, which has showed that profit shifting has dramatically increased since the 1970s. Essentially, when a multinational moves its profit from a high tax jurisdiction to a low tax jurisdiction. To what extent do you think the OECD proposal is going to stop that type of behaviour? And I guess the same question to that as a follow up is are you expecting multinationals to change the way the way they behave on the back of this proposal?

Gabriel Zucman, Director, EU Tax Observatory: Thanks. Thanks a lot for the opportunity to be on this panel. And I want to start by saying that this agreement is really a step in the right direction. It's the first time that there's going to be an international agreement where countries agree on a minimum tax rate. We have many treaties that are about everything except tax rates, which is really what matters the most, our tax policy.

It is going to make a real difference, especially pillar two, because many companies today pay less than 15% in taxes, at least in some of the countries where they book profits. And the reason for that is because there's widespread profit shifting to tax havens. We estimate with my co-authors that each year almost 40% of global multinational profits are booked or shifted to tax havens where they are subject to very low tax rates, you know, a 5% or so. So, this agreement is going to make a difference.

That being said, it's also very insufficient and it's also conceptually and philosophically flawed. It is insufficient because a tax rate of 15% is way too low in many countries that the ratio of taxes to total income is 30%, 40%, 50%. Which means that most social groups, you know, the middle class, the working class, they pay 30, 40, 50% of their income in taxes. Now we are saying for multinational companies, it's okay to pay only 15%. Multinational companies, some of the most powerful economic actors who've most benefited from globalisation, it's okay for them to only pay 15%. It's very hard to understand for people and for good reasons. So that's the first issue.

The second issue is that in practice, multinational firms will still be able to pay significantly less than 15%. And the reason for that is the big conceptual problem with this agreement, which is that not all profits are going to be subject to 15%.

Joumanna Bercetche: There are carve outs.

Gabriel Zucman: There are carve outs which are very large, and I want to explain that very quickly, because it's a really important philosophical question, and I'm going to explain exactly what I mean by that. The carve outs mean that if you have sufficient activity in a country, you employ people, you have assets, then the profits that derive from that activity are not subject to the tax, the 15% minimum tax, or at least not fully subject to the tax. The underlying kind of philosophy behind that is that tax competition, when it's real, you know, when it's real factors of production: employees, assets moving to low tax places is legitimate and there should be no floor to how low taxes can go. Even tax rates of 0% are acceptable. And I think this is the big problem. This is a big problem, because if we keep having a form of globalisation where there is no floor to tax competition, it means who's going to benefit the most from globalisation? Well, the most mobile sectors of production, multinational firms, their shareholders, people who are at the very top of the income and wealth distribution this is going to keep fuelling inequality and eventually this is not sustainable. So that's the big problem.

Joumanna Bercetche: Can I just ask you: that $220 billion that I mentioned at the beginning, can you contextualise it for us? Is that a decent sum to be raised from this type of overhaul?

Gabriel Zucman: It's decent. I want to stress again that I do think that this is a step in the right direction. So, $220 billion in extra revenue. And we obtained very similar estimates in our own work in the context of the EU Tax Observatory. So, we think this is realistic. That's almost 10% of global corporate income tax revenues. That's a significant amount of money that's for pillar two. Pillar one most likely would generate significantly less revenue. But for pillar two, we're talking about significant revenues. And the reason for that- what it means is that you have many companies that pay much less than 15% today. Last week, the Government Accountability Office in the US released a report where they estimate that the effective tax rate for large US corporations after the 2018 tax reform in the US has been 9%. 9%. So, you know it's below 15. That means 15 is going to make some difference. But of course, the big problem is why only 15? That could be much more revenue if it was 20, 25.

I want just to finish with that last thing. In the mid 1980s, the average statutory corporate income tax rate globally was above 45%. Today we are around 20, 25%. Again, we are saying, well, there should be a minimum of 15%. But historically, we've been way, way above that.

Joumanna Bercetche: Okay, I'll come back to that. Faisal, I'd like to ask you about where Saudi Arabia stands in terms of implementing this deal. I think it's relevant because there is sort of a critical mass that's required for this deal to be successful. Is there a bit of a ‘I'll go if you go’ mentality?

Faisal Alibrahim, Minister of Economy and Planning, Government of Saudi Arabia: I'll be very frank with you. Saudi Arabia broadly supports this. There are some details that need to be sorted out, but we broadly support this because it stands underpinned by the pillars of fairness. This is all about making sure that value and taxation are close to each other. And in that regard, I think in Saudi, under Vision 2030, we've been focusing on detaching ourselves from the traditional sources of revenue with our economic diversification to think about more long term sustainable revenue generation, but also diversifying our sources of growth. So, this will, as a by-product, push governments to think about the true fundamentals of competitiveness and competition at the same time. So this will drive productivity, this will drive competitiveness, this will take us away from the environment that had that race to the bottom with being too attached to fiscal incentives.

Now, I agree, we have to make sure everybody's at the table and listen to everyone. One thing we learned in the last seven years is that voices are heard and collaboration yields results. So broadly, we're supporting this direction. We agree this is a step in the right direction. We feel that we have to stick to the timeframe that's been set up with a multilateral agreement by mid-23 and implementation at the start of 2024.

Joumanna Bercetche: Matthias, I'd like to go back to you. So there's a lot coming at you, namely that you know, that one of the criticisms of the deal is that there are many carve outs. For example, I read on pillar one, once you adjust for all of the minimum thresholds, etcetera, you basically end up with a very small pie of around 69 companies that will end up being taxed. That's in pillar one, and the bulk of it is coming from US big tech firms. So it is a global deal, but in that sense of local impacts. Other pushbacks, we heard from Gabriel saying that 15% is too low and many, many concessions were not given to represent African communities. How do you respond to all of that?

Mathias Cormann: Well, firstly, I mean, we've always said and we still believe that there's about 100 of the world's largest, most successful multinational corporations that are in scope for this deal. And it is a very substantial reallocation of taxing rights. And pillar two, as you've mentioned, we expect now to deliver another $220 billion US per year in additional revenues, mostly benefiting low- and middle-income countries.

Now, you know, some people have argued all the way through instead of 15%, we should have 20 or 25%. But you know what? In the end, you’ve got to get consensus on something that will be implemented, and 15% is substantially better than 0%. And I mean, what we're trying to address here is, you know, a history now of tax evasion and tax avoidance, which has become much easier in a globalised digitalised world economy.

In terms of the comments that were made, we very much appreciate our work with Nigeria. Nigeria is a deputy chair and the Inclusive Framework Steering Committee. Half of the members of the Steering Committee are developed economies, more than half of the members of the inclusive framework are developing economies. And you know, the decisions in the inclusive framework are made by consensus. Now, that makes it more difficult, it makes it more involved. But we are very committed. We will continue to engage with Nigeria and with others in relation to some of the outstanding issues on which we still are yet to reach consensus.

Now, we do believe, though, that for countries like Nigeria, this is an incredibly positive deal that is on the table. I mean, Nigeria right now, it has one of the lowest tax to GDP ratio in the world, 5.5%, 5.56%. Across the OECD on average it's 34%, across African countries and abroad, it's about 15, 16%. Now, we believe that both on the pillar two and pillar one, as currently designed, the Nigerian government will have substantially more revenue available to deliver investment, public services and social protection to its population.

Now, it's true, we can continue to have an argument, you know, around the world for a very long time that we will never reach landing. And we remain stuck at a level where we say, okay, we want the perceived perfect instead of pursuing the achievable good that's on the table. What I'm suggesting is this is a deal that has the most realistic prospect of any other deal on the table to actually make a tangible, positive difference. Let's make it happen.

Yes, let's continue to work constructively and in good faith through some of those technical issues that are on the table. But ultimately, let's not let this fail. Let's make sure this succeeds.

Joumanna Bercetche: Why was there a carve out for UK financial services?

Mathias Cormann: Well, you know, in the end, we were not talking about carve outs here, about specifics. There's a carve out in terms of pillar one of regulated financial services and extractive resources, the resources sector. Now, what we're trying to achieve here is to address the risk of tax evasion and tax avoidance in relation to very mobile activities and in particular, and that's why the digital industry was so much in scope.

I mean, the example that was just mentioned, I'm not aware of countries that would tax at 0% businesses in their jurisdiction, with physical activity in their jurisdiction, as part of it. I mean, businesses activities that can't easily shift to another jurisdiction are not the sort of activities that get taxed at 0%. The risk of harmful tax competition is in relation to those activities where countries can structure their affairs and shift the activities easily around the globe in order to get themselves the best possible tax arrangement. So here, we're trying to achieve the right balance, making sure that those companies that are generating profits in market jurisdictions but currently are not paying their fair share of tax in those jurisdictions that we very much hone in on to those business activities to make sure that they pay their fair share of tax in those markets where their customers are going to generate their profits. But we don't want to create counterproductive distortions in relation to real activities and substantial activities in economies around the world.

Joumanna Bercetche: Minister, I think that Mathias raised a very interesting point in that each country is coming with their own different structural set up. The number I think you said was that as a proportion of total GDP, only 5% of-

Mathias Cormann: 5.5-6%.

Joumanna Bercetche: 5.5% is coming from tax. And African nations in general rely a lot more on corporation tax than on other types of taxes. Just to give a number that I read, in 2017, African countries raised 19% of their overall revenue from corporation tax, compared with an average of just 9% for OECD members. So, a little bit more reliance on those corporate tax revenues.

Zainab Shamsuna Ahmed: Well, those numbers are correct. But also, we believe if there's a global initiative, you should consider different sizes of countries that are on the table. Why do we have only the largest MNEs (Multinational Enterprises) under consideration? Why can’t we have another pillar that addresses medium sized companies, which are the majority of the companies that are operating in our jurisdictions? So, if we sign up to this means we're excluded from getting taxes from medium sized companies, we're not actually, by our own laws, have an opportunity to collect taxes from under it.

I do understand and appreciate your situation, Matthias, that progress needs to be made and we support this initiative. We're on the table. We're just asking for a reconsideration of some of the commitments that have been made so that we're not going to end up- if we sign up to this, our analysis is we're going to end up with a negative tax. So, taxes that we used to be able to collect from these medium sized companies, we cannot collect. The majority of the companies that are these rules now are not operating in our jurisdictions. So, there's a need to reconsider how to make either some amendments or how to add another scope that helps us to capture more of the companies that are operating in developing economies like Nigeria.

Joumanna Bercetche: Is there any overlap between the proposal via the UN? What you're pushing for at the UN level with the existing OECD proposal?

Zainab Shamsuna Ahmed: The is, but the UN proposal is kind of more straightforward and simplistic, but the limitation that it has is it has to be based on a bilateral tax treaty. So that's a huge limitation. We hope also that that can be corrected. The complexity, like I said earlier on, is also a very important consideration.

One of the reasons why we have a lot of profit shifting and tax evasion in our countries is because of the limitation of skills of trying to identify these practices, trying to even implement our own laws. So, when you allow me to sign or you commit to sign to a process that is complex, you're providing more room for those leakages to happen. The carve outs, I just don't understand why. Some of the analysis we make from those carve outs, while it is written as 10% could be effectively as low as 2 to 3%, so there's a need for a reconsideration. And it's not to say you can't move forward with the first effort, but there's the need to quickly look at some other additional variations so that countries like ours - even some of the countries that have signed up are also now rethinking. Because when you go to your parliaments, these questions will be asked. And how do you get these laws passed in your jurisdictions if the analysis shows that you end up with negative revenue flows as opposed to gains?

Joumanna Bercetche: Very clear. Gabriel, I want to go back to something you said earlier, which is in general, corporate taxes have been dropping since the eighties from about 45% to around 20%, I think now you said. What I thought is interesting is, in the last couple of years more so than ever, countries have been focusing a lot more on their own fiscal situation. And you can't talk about tax reform without thinking about it through the lens also of the public finances and what pressure countries are under to bolster them. I thought it was notable that in the UK, for example, recently they have actually reversed their policy on corporate taxation. Corporate tax is set to rise from 19 to 25 percentage point. I think only one of two OECD countries that has announced such measures in recent years. Do you think this era of the race to the bottom on corporate taxation is coming to an end?

Gabriel Zucman: Unfortunately, no. I really wish I could have a more optimistic answer. But what you have to realise is that with the agreement as it's going to be hopefully implemented in the near future, there is going to be very strong incentives for countries to keep offering low tax rates; tax rates even lower than 15% to attract activity on their territory.

It's true that today there's no country where there is a lot of substance, meaning there's a lot of production happening, with a 0% tax rate, but we might well go there. Today we have countries where now, you know, substantial production happening with rates that are below 10%, especially, you know, tax rates for income derived from intellectual property with old patent boxes. You know, it's very common to have rates that are 5, 6, 7%. That's the situation today. And we might even get to less than that in the future because the agreement doesn't put a floor to tax rates, to how low tax rates can go, when firms have real activity. And so, I'm really concerned about that.

The reason why I am concerned more broadly is that you have to take the bigger perspective on tax systems. The corporate tax is one tax, but you know, it's not the main source of tax revenues, at least in most countries. However, the reason why it matters a lot is because it's essentially impossible to have a progressive individual income tax, which is in most countries the pillar of tax progressivity the way we are tend to tax high earners. It's impossible to have a well-functioning individual income tax without a well-functioning and high enough corporate tax. Because if the corporate tax rate is too low, then what happens is that rich people incorporate, they operate as businesses, they earn income, you know, subject to the corporate income, the low corporate income tax rate, and the individual income tax unravels. And so, if we want to do anything seriously to kerb the rise of income and wealth inequality, it's going to involve progressive taxation, progressive taxation of income in particular. And that needs to involve substantially higher corporate income tax rates. I don't see a future where corporate tax rates remain, you know, 15% or even less than that, and we can really tax high income earners at substantially higher rates, I think. So, the risk at the end of the day is just to see a continuation of the rise of income and wealth inequality that we've witnessed in recent decades.

Mathias Cormann: There's an important point here, though. I mean, what we're trying to address with the global tax deal is tax evasion that is facilitated by shifting from country to country. I mean, the issues that you raise can be addressed now by individual jurisdictions. I mean, the global tax deal is on the table, the fully inclusive framework, does not prevent countries from imposing higher corporate taxes. It's a minimum global tax. It does not prevent countries from addressing the risk that you describe of incorporating yourself in order to avoid higher progressive personal income taxes. I mean, these are all things that individual jurisdictions can address for themselves, subject to the democratic processes.

The reason why there's a need for international agreement to address what we're seeking to address is because of the capacity for big multinational businesses to shift their affairs and to structure their affairs such to essentially pick the jurisdiction that gives them the best deal. And then in the sort of whole process, also put pressure on some countries to offer deals that, quite frankly, are tax wasteful.

So, I mean, I don't think that the deal that is on the table would prevent individual countries from doing what you're suggesting, if that is what they choose.

Gabriel Zucman: Respectfully, I disagree with that, because if there's no limit to tax competition it's very hard for individual countries to increase their corporate income tax rate. If firms can move their factories can move their headquarters, can move their employments to low tax countries where they will still be subject to tax rates below 15%. So, I'm sorry, but this agreement doesn't help countries to increase their corporate income tax rate, unfortunately.

Mathias Cormann: Well, substantive activity is not shifted.

Gabriel Zucman: No, but that's the same problem and it's even worse. You know, shifting people profits across countries, pure profit shifting, I agree with you is going to be very substantially reduced thanks to pillar two. And I started my remarks by saying that, you know, it’s very important progress and it's worth celebrating progress when it happens. So pure profit shifting, booking billions of dollars in profits in territories where there is no activity, this will come to an end. Those profits will be taxed at least 15%. And that's you know, that's a very good development.

However, what is not going to change is that there will remain incentives for firms to move, not their paper profits, but their factories, their workers, the headquarters of their real activity to very low tax countries, including zero tax countries. That's an even bigger problem.

Joumanna Bercetche: It's going to be difficult to come up with a solution on this panel, but also a solution, one solution, that works from the very first draft, and this is the first draft of serious international tax reform. As all of you have said, it is a step in the right direction. But there are a few lingering issues.

Faisal, I'd like to round out the discussion with you. Saudi Arabia is in actually in a special situation, contrary to what Gabriel just described, because there's no income tax, but there is a high corporation tax. Corporation tax is about 20%, I think, in Saudi Arabia, but of course, no income tax. How do you think about tax as a tool, maybe a blunt tool, in terms of wealth distribution?

Faisal Alibrahim: So, I think we have to keep in mind that Saudi managed to increase VAT from 5% to 15% during one of the most challenging times. And according to Kristalina [Georgieva, Managing Director, International Monetary Fund] yesterday on the Saudi panel, it's virtually the only country that was able to do that successfully.

So, we look at simplifying tax revenues and utilising them in a way that was never done before, but not at the expense of economic growth or economic development. So, Saudi has been a supporter of this pillar one and pillar two from the beginning. During the G20 presidency led by Saudi Arabia, it was pushed all the way to paving the way for it to be announced during the Italian presidency.

I think there are challenges. One, we need to, as we said, listen to all constituents and leverage multilateral platforms to enhance the institutional capabilities of all governments, all players, all partners. I think with the better institutional capability, we can shift the focus from minimising the change or minimising the impact, to where else can we compete. And I think the ultimate long-term effect of all of this is that we will look at competitiveness and fundamentals that will help our economies become more sustainable, rather than relying on fiscal incentives that will probably take us nowhere.

There's another thing that's challenging in this, and we still think sticking to the time frame is important is its complexity. This is very complex and it takes time for everyone to understand, including governments, to understand how they will be impacted, where and to what end. And ultimately, there are always options, but if you extend the investment horizon a little bit and think more long term, and couple that with raising institutional capabilities everywhere, we can think more broadly about what these can push us to do, but it's very complex. I'm pretty sure if we go to ChatGPT you will get no answer.

Joumanna Bercetche: One thing they don’t have an answer to.

Faisal Alibrahim: The other thing is just one last point. I think companies say there are admin costs related to it, but the structures will shift and will become a little more logical with minimal distortions. It will cost us a lot to get there. But a steady state I think is more logical.

Joumanna Bercetche: Well, we've got about six minutes. I want to see if anyone in the audience would like to ask our panellists a question. I'm going to open it up. Yes.

Audience Member: My name is David Buckingham, a journalist with Der Speigel in Germany. Tax consultants have historically been really good in finding the loopholes in the new legislation. How confident are the panellists that this will not happen with this new agreement, especially in developing countries, that the tax administrations there have enough resources to actually enforce these rules?

Mathias Cormann: Well, I mean, a big focus of our work is on supporting capacity development in developing economies. It is a real issue, there is a real challenge there and that is also why we're having conversations, for example, in relation to the transfer pricing provisions on simplified arrangements. I mean, it is a challenge. It's something that we've got to make sure that we continue to work through. But I mean, we do believe that this is a robust deal.

In the end, if you want to get consensus among 140-odd countries, you have to get a lot of different perspectives onto one table. And, you know, in the end, we can say — I say it again, I'm repeating myself — we can say, let's hold out for the perfect where we have got no risk and no issues, but it doesn't happen. Or we can go ahead with what is, in my opinion, the best available deal on the table right now, make it work, deliver the additional income in particular to low-income and middle-income countries so that they can invest those resources into their economies and into their communities.

But of course, to implement this effectively will take a lot of work and there is in particular a lot of work to be done on capacity development in developing countries.

Joumanna Bercetche: Do we have another question? Would you like to take a crack at that?

Gabriel Zucman: To add to that, I'm actually pretty concerned about this happening because it has happened in the past. So, when harmonised transfer pricing regulations were introduced in a number of OECD countries, we saw that this was a boon, you know, for the transfer pricing industry. We saw an explosion of activity in the transfer pricing industry to find loopholes and very little or sometimes no positive effect on tax revenues. And this is a very, very complex agreement. And I'm very concerned that this might play out again in the future.

I would just like to add something that relates to the need for unanimity or consensus. All of these discussions start from the premise that we need to have all countries and territories on board. We have to question that, because if we have that approach, in effect, it gives a veto power to countries and territories that benefit enormously from the status quo, that benefit from profit shifting, that benefit from tax competition. And that's how at the end of the day, you have significant loopholes and carve outs that are introduced in the agreements.

And so, there are other ways to proceed. So, for instance, when we look at what happened for bank secrecy, there used to be strict bank secrecy in countries like Switzerland and other tax havens, but this changed not because of a consensus. It changed first and foremost because of the United States, because of unilateral action by the United States in 2010 with the Foreign Account Tax Compliance Act that threatened Swiss banks with economic sanctions and those threats, the banks agreed to cooperate with the US and it paved the way for a multilateral agreement. But historically, progress often happens like that. There is unilateral action. Could be one country, could be a group of countries, showing that we can do better, better than 15%, could be 25% minimum tax rate. And that creates a dynamic for ambitious global agreement.

Joumanna Bercetche: We've got about two minutes left. Mathias, I just want you to spell out to the room what you think is at stake if this agreement does not get implemented.

Mathias Cormann: Well, what is at stake is about $220 billion in additional revenue that's on the table from pillar one. That would benefit all countries except for investment hubs who lose tax base and tax revenues, but which would in particular benefit low-income countries.

What is at stake is the implementation of a reform agreement that would make international tax arrangements fairer and work better. Will everybody unanimously say this is the perfect thing and the best thing since sliced bread? No. But is it better than what we currently have? Substantially better, yes.

I would just urge everyone not to give up on this, not to give away this chance, to substantially reform the international tax arrangements, to make them fairer and work better for the 21st century.

Joumanna Bercetche: Final word for the minister.

Zainab Shamsuna Ahmed: Well, I just want to appeal to OECD to also make sure that as you're seeking these tax reforms, which we agree with, that you're not leaving some countries worse off than they already are or completely leaving out some countries in the bargain, because I believe with just a little more effort, there can be a way to accommodate some of the concerns that the African countries have. So, it wasn't just Nigeria. It was a meeting of African countries that agreed for Nigeria to submit on behalf of the African countries the concerns that we have. So, it wasn't just Nigeria.

Joumanna Bercetche: I'm going to end this by saying at least we're sitting here and having this discussion and that is a step in the positive direction. Thank you very much.