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OECD leading multilateral efforts to address tax challenges from digitalisation of the economy

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Today the OECD Secretariat published a proposal to advance international negotiations to ensure large and highly profitable Multinational Enterprises, including digital companies, pay tax wherever they have significant consumer-facing activities and generate their profits.

The new OECD proposal brings together common elements of three competing proposals from member countries, and is based on the work of the OECD/G20 Inclusive Framework on BEPS, which groups 134 countries and jurisdictions on an equal footing, for multilateral negotiation of international tax rules, making them fit for purpose for the global economy of the 21st Century.

The proposal, which is now open to a public consultation process, would re-allocate some profits and corresponding taxing rights to countries and jurisdictions where MNEs have their markets. It would ensure that MNEs conducting significant business in places where they do not have a physical presence, be taxed in such jurisdictions, through the creation of new rules stating (1) where tax should be paid (“nexus” rules) and (2) on what portion of profits they should be taxed (“profit allocation” rules). 

“We’re making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020,” said OECD Secretary-General Angel Gurría. “This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public. It brings us closer to our ultimate goal: ensuring all MNEs pay their fair share.”

”Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy. We must not allow that to happen,” Mr Gurría said.

The Inclusive Framework’s tax work on the digitalisation of the economy is part of wider efforts to restore stability and certainty in the international tax system, address possible overlaps with existing rules and mitigate the risks of double taxation. Beyond the specific elements on reallocating taxing rights, a second pillar of the work aims to resolve remaining BEPS issues, ensuring a minimum corporate income tax on MNE profits. This will be discussed in a public consultation foreseen to take place in December 2019.

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EU Politics

Conditions worsen for stranded migrants along Belarus-EU border

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At least eight people have died along the border between Belarus and the European Union, where multiple groups of asylum-seekers, refugees and migrants have been stranded for weeks in increasingly dire conditions. 

The UN Refugee Agency, UNHCRappealed for urgent action on Friday, to save lives and prevent further suffering at the border with Latvia, Lithuania, and Poland. The latest casualty was reported within the past few days. 

UNHCR warned that the situation will further and rapidly deteriorate as winter approaches, putting more lives in danger. 

For the Agency’s Regional Director for Europe, Pascale Moreau, “when fundamental human rights are not protected, lives are at stake.” 

“It is unacceptable that people have died, and the lives of others are precariously hanging in the balance. They are held hostage by a political stalemate which needs to be solved now,” he said. 

According to media reports, the EU regards the increase in asylum seekers at the border, a direct result of Belarus, in effect, weaponizing migrants, in retaliation for sanctions placed on the Government over the suppression of the protest movement following last year’s disputed re-election of President Lukashenko.  

International group 

Among those stranded are 32 Afghan women, men and children. They have been left in limbo between Poland and Belarus since mid-August, unable to access asylum and any form of assistance. They do not have proper shelter and no secure source of food or water. 

A group of 16 Afghans tried to cross into Poland this week, but they were apprehended and not allowed to apply for asylum. They were also denied access to legal assistance. Within a few hours, they were pushed back across the border to Belarus. 

So far, UNHCR has not been granted access to meet with the group from the Polish side, despite repeated requests, and only met them a few times from the Belarusian side to deliver life-saving aid. 

International law 

The Agency has been advocating for the group to be granted asylum, since the Afghans have expressed their wish to settle either in Belarus or in Poland. 

The request has been ignored by both sides. For UNHCR, that is “a clear violation of international refugee law and international human rights law.” 

“We urge Belarus and Poland, as signatories to the 1951 Refugee Convention, to abide by their international legal obligations and provide access to asylum for those seeking it at their borders.  

“Pushbacks, that deny access to territory and asylum, violate human rights in breach of international law”, said Mr. Moreau. 

UNHCR urges the authorities to determine and address humanitarian and international protection needs, and find viable solutions. The agency also stands ready to support refugees, together with other relevant stakeholders. 

“People must be able to exercise their rights where they are, be it in Belarus or in Poland or other EU States where they may be located. This must include the possibility to seek asylum, access to legal aid, information and appropriate accommodation”, Mr. Moreau concluded. 

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Africa Today

Madagascar: Severe drought could spur world’s first climate change famine

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Children under five are among the most affected by malnutrition in southern Madagascar. © WFP/Tsiory Andriantsoarana

More than one million people in southern Madagascar are struggling to get enough to eat, due to what could become the first famine caused by climate change, according to the World Food Programme (WFP). 

The region has been hit hard by successive years of severe drought, forcing families in rural communities to resort to desperate measures just to survive. 

Madagascar, the fourth largest island in the world, has a unique ecosystem which includes animals and plants found nowhere else on the planet. The country experiences a dry season, usually from May to October, and a rainy season that starts in November.  

Daily life disrupted 

However, climate change has disrupted the cycle, affecting smallholder farmers and their neighbours, said Alice Rahmoun, WFP Communications Officer in the capital, Antananarivo, speaking to UN News on Thursday. 

“There is of course less rain, so when there is the first rain, they can maybe have hope and sow some seeds. But one little rain is not a proper rainy season,” she said.  

“So, what we can say is that the impacts of climate change are really stronger and stronger….so harvests fail constantly, so people don’t have anything to harvest and anything to renew their food stocks.” 

Varying impacts 

Ms. Rahmoun was recently in southern Madagascar, where WFP and partners are supporting hundreds of thousands of people through short and long-term assistance.   

The impact of the drought varies from place to place, she said. While some communities have not had a proper rainy season for three years, the situation might be even worse 100 kilometres away.  

She recalled seeing villages surrounded by dried-out fields, and tomato plants which were “completely yellow, or even brown”, from lack of water.  

Surviving on locusts 

“In some areas they are still able to plant something, but it’s not easy at all, so they are trying to grow sweet potatoes.  But in some other areas, absolutely nothing is growing right now, so people are just surviving only eating locusts, eating fruits and cactus leaves,” said Ms. Rahmoun.   

“And, just as an example, cactus leaves are usually for cattle; it is not for human consumption.”   

The situation is even more dire because, she added, “even the cactus are dying from the drought, from the lack of rain and the lack of water, so it’s really, really worrying”. 

Families barely coping  

The plight of families is also deeply troubling. “People have already started to develop coping mechanisms to survive,” she said.  

“And that means that they are selling cattle, for example, to get money to be able to buy food, when before, they were able to get food and feed themselves from their own field production, so it’s really changing the daily life for people.” 

Valuable assets such as fields, or even houses, are also put up for sale.  Some families have even pulled their children out of school. 

“It’s also a strategy right now to gather the family’s forces on finding income-generating activities involving children, so this has obviously a direct impact on education,” Ms. Rahmoun said. 

Providing life-saving aid 

WFP is collaborating with humanitarian partners, and the Malagasy Government, to provide two types of response to the crisis.  Some 700,000 people are receiving life-saving food aid, including supplementary products to prevent malnutrition. 

“The second one is more long-term response to allow local communities to be able to prepare for, respond to and recover from climate shocks better,” said Ms. Rahmoun. “So, this includes resilience projects such as water projects.  We’re doing irrigation canals, reforestation and even microinsurance to help smallholder farmers to recover from a lost harvest, for example.” 

WFP ultimately aims to support up to one million people between now and April, and is seeking nearly $70 million to fund operations.  “But we are also involving more partners to find and fund climate change solutions for the community to adapt to the impacts of climate change in southern Madagascar.” 

COP26: Prioritize adaptation 

In just over a week, world leaders will gather in Glasgow, Scotland, for the COP26 UN climate change conference, which UN Secretary-General António Guterres has called the last chance to “literally turn the tide” on an ailing planet. 

Ms. Rahmoun said WFP wants to use the conference to shift the focus from crisis response, to risk management.  

Countries must be prepared for climate shocks, and they must act together to reduce severe impacts on the world’s most vulnerable people, which includes the villagers of southern Madagascar. 

“COP26 is also an opportunity for us to ask governments and donors to prioritize funding relating to climate adaptation programmes, to help countries to build a better risk management system, and even in Madagascar, because if nothing is done, hunger will increase exponentially in the coming years because of climate change,” she said, adding: “not only in Madagascar, but in other countries.”

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Finance

Albania Has Opportunity to Build a More Sustainable Growth Model

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Albania’s economy, like other countries in the region, is recovering faster than expected after the historic recession created by the COVID-19 pandemic. Following the contraction of the economy by 4 percent in 2020, GDP growth is projected to reach 7.2 percent in 2021, one of the highest among Western Balkans countries, says the latest edition of the Western Balkans Regular Economic Report, Greening the Recovery.

The strong recovery is supported by consumption, tourism, and construction. Going forward, growth is expected to moderate at 3.8 percent in 2022 and 3.7 percent in 2023.

Albania’s poverty rate is projected to fall below its pre-pandemic level by end-2021. Employment and labor force participation is also recovering, albeit with a lag, and real wages are increasing.

The recovery is contributing to fiscal revenue collection. Macroeconomic policies have supported the recovery, but higher spending has led to a further rise in the debt-to-GDP ratio. Economic uncertainty remains high, as the COVID-19 pandemic continues worldwide.

“The Albanian economy has shown encouraging signs of recovery in 2021,” said Emanuel Salinas, World Bank Country Manager for Albania. “As growth rebounds, Albania has the opportunity to strengthen the sustainability of its economic model and implement reforms that further support sustainable and shared growth, while preserving macroeconomic stability.”

The report shows that the Western Balkans region has improved significantly, with GDP growth now projected to reach 5.9 percent in 2021, after a 3.1 percent contraction in 2020. Growth in the region is projected at 4.1 percent in 2022 and 3.8 percent in 2023.

The poverty rate for the region is projected to resume its pre-pandemic downward trend and fall by around 1 percentage point to 20.3 percent, close to its 2019 level.

The regionwide recovery is due to strength in both domestic and external demand. A sharp rebound in domestic consumption and in travel across Europe helped boost remittances as well as tourism inflows during the 2021 peak summer season. A strong recovery in advanced economies also provided a boost to demand for the region’s exports.

However, the recovery remains fragile. Early warning signals from the labor market call for close policy attention. Job losses from the recession and its aftermath have disproportionately affected women and youth, which may set back efforts to raise the region’s perennially low rates of labor force participation. Youth unemployment in the region rose to 37.7 percent in 2021, up 5.4 percentage points from June 2020, further worsening youth employment prospects.

“As the Western Balkans countries look to a post-pandemic future, their policy approach will need to focus on addressing key impediments to job creation and economic transformation, including green transition,” said Linda Van Gelder, World Bank Country Director for the Western Balkans. “All six countries would benefit from reforms in the business environment, governance, and digitalization, which would contribute to growth and close the gap with EU countries.”

The report also looks at the macro-fiscal challenges and drivers of greening the region’s growth. The Western Balkans now find themselves at a key decision point regarding the impending green transition.

Global strides toward climate action are causing fundamental changes in society. Consumer and investor preferences are shifting, green technologies and new business models are disrupting more markets, and green policies are reshaping economic landscapes. As such, greening a country’s economy is becoming a decisive factor in international competitiveness and the ability to attract international finance and investments.

The Western Balkans are no exception. Still characterized by a development model tilted toward familiar brown industries, moving toward a green growth pathway is far from easy, especially in the short term. Yet, the green transition offers significant opportunities for the Western Balkans – including closer integration into Euro-centric global value chains and access to significant EU resources to help fund a green transition.

Effectively managing this green transition, including the many policy tradeoffs, will need to be a core focus of policy attention for the Western Balkans in the years ahead.

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