A bad deal for development: Assessing the impacts of the new inclusive framework tax deal on low- and middle-income countries

Close-up of calculator on Indian rupee banknotes on table.


In October 2021, G-20 leaders finalized a new global tax deal aimed at curbing tax avoidance by large multinational enterprises (MNEs). The deal, brokered by the Organization for Economic Cooperation and Development (OECD) and endorsed by 137 countries and jurisdictions (collectively this group is referred to as the Inclusive Framework or IF), represents the most significant global tax reform in decades. Among other features, the “IF deal” introduces new taxing rights irrespective of an MNE’s physical location, and a new global minimum corporate income tax of 15 percent on the largest MNEs.

The IF deal’s primary goal is to prevent MNEs from taking advantage of gaps in international tax regimes that have enabled them to shift profits away from jurisdictions where they actually generate economic value to low or no tax jurisdictions. Multinational tax avoidance costs countries an estimated $500 billion per year, with the greatest relative intensity of losses occurring in low- and middle-income countries (LMICs). Recent research suggests that approximately 40 percent of multinational profits are shifted to tax havens each year, which results in a net loss of around 10 percent of global corporate income tax revenue worldwide. MNE tax avoidance may cost as much as 5-8 percent of GDP annually for LMICs like Guyana, Chad, Guinea, Zambia, and Pakistan, compared to 0.61-1.06 percent of GDP in annual losses for higher income countries like Germany and France.

Negotiations over the IF deal took place in the context of a pandemic-driven global recession, which has dramatically reduced economic growth, increased poverty, strained public resources and reduced the tax base, particularly in LMICs. For LMICs, the burden of pursuing COVID-19 economic recovery comes in addition to navigating the fiscal challenges of climate crisis, a spiraling debt burden, faltering foreign aid, and more recently, inflation. In this context, the IF deal represented a critical opportunity to help LMICs generate significant new resources to confront urgent development challenges by addressing the serious revenue drain of MNE tax avoidance.

Unfortunately, that is not how the negotiations unfolded. While G-7 countries have celebrated the IF deal as a breakthrough in “ending the race to the bottom in corporate taxation” worldwide, LMICs have expressed frustration and concern about various inequities embedded in this deal, with Kenya, Nigeria, Pakistan, and Sri Lanka refusing to sign on. Despite LMICs suffering disproportionately from multinational corporate tax avoidance, the net result of this largely G-7 driven tax reform appears to be that it will overwhelmingly benefit only this handful of wealthy countries. Indeed, by approaching the IF deal as primarily a domestic policy opportunity, the G-7 missed one of its most powerful near-term foreign policy tools to support the economic recovery and development in the Global South in the coming years.

The failure of the IF deal to benefit domestic resource mobilization in LMICs is particularly egregious not only given the dire economic situation in these countries, but also in light of high income country promises at the Addis Ababa Action Summit in 2015 to “combat tax evasion as well as tax avoidance” as a means to help LMICs finance the Sustainable Development Goals (SDGs). That 2015 summit gave rise to the Addis Tax Initiative, a multistakeholder effort to help LMICs get the financing, technical assistance, and global cooperation they need to strengthen domestic resource mobilization (DRM) and fund social and economic development. The result of that effort to date has been the failure of high-income countries to live up to their collective promises to double DRM funding, while at the same time refusing to use the IF deal to close global loopholes in ways that meaningfully benefit DRM in the Global South.

This paper looks at the substance of the recent IF tax deal in terms of its likely impacts on LMICs and finds that the deal is nothing to celebrate outside a handful of wealthy countries. It explores what LMICs had initially hoped to gain from the tax deal and where their asks and expectations ultimately failed to find resonance in the final IF deal. It places the tax deal in the broader context of financing for development trends in LMICs before and during COVID-19, with particular attention to specific commitments made by high-income countries to scale up support for DRM in recent years. Finally, it considers what opportunities exist for LMICs to address their unresolved global tax governance concerns going forward, both within and outside of the IF deal.

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  • Footnotes
    1. The IF deal emerged from a broader OECD Base Erosion and Profit Shifting (BEPS) process that initially focused on OECD member countries. Pressure to address LMICs’ outsized reliance on corporate income tax and their exclusion from policy discussions led to the creation of the OECD/G20 Inclusive framework (IF), which now involves 141 countries and jurisdictions focused on reforming international and national tax systems to address tax avoidance and enhance tax cooperation.
    2. Alex Cobham and Petr Jansky,”Global distribution of revenue loss from corporate tax avoidance: reestimation and country results,” International Development, March 2018, For this paper, low- and middle-income countries (LMICs) refer to the most recent OECD Development Assistance Committee (DAC) list, which for 2022 categorizes low income countries as those with a GNI per capita of $1045 or less in 2020, and middle income as a GNI per capita of between $1,046-$4,095 (lower middle income) and $4096-$12695 (upper middle income),
    3. See, a collective project to the University of California, Berkeley and University of Copenhagen. Estimates based on “The Missing Profits of Nations “by Thomas Tørsløv, Ludvig Wier and Gabriel Zucman, Updated 2018 estimates.
    4. Ibid Cobham and Jansky
    5. World Bank Press Release, Low-Income Country Debt Rises to Record $860 Billion in 2020, October 2021,
    6. IMF Blog, Corporate Tax Rates: How Low Can You Go, IMF, July 15, 2019,
    7. Addis Ababa Action Agenda of the Third International Conference on Financing for Development, United Nations, July 2015,