THE PROBLEM

How are the producing countries disadvantaged?

1/ Multinationals are taxed in the country of their headquarters, unless part of their business is a permanent establishment, or in other words a fixed place from where part of the business activity is done. However, the agricultural production, the most essential step in any food supply chain is not considered to be a permanent establishment by the rules of International taxation law.

2/ Even if agricultural production was considered as permanent establishment; one cannot forget that the allocation of taxable profits between headquarters and permanent establishment is based on the market price - the price agreed between the importers and the producers, in the case of agricultural goods mostly produced in the Global South. This price is often unfairly fixed given the persisting geo-political inequalities between producing and importing states.

SOME CONTEXT ...

The international taxation laws were born to avoid double taxation, which means that an individual or a multinational shouldn’t be taxed twice on the same product, especially if both countries had different taxation jurisdictions. These agreements are called “DTA” (double taxation agreement), and are supposed to help prevent tax evasion, and create a more egalitarian system. However, those agreements were concluded in the aftermath of WWI as the world was still shared mainly in the hands of European countries. The main focus was to find the way to divide the tax earnings coming form the colonies. This is where the idea of “the value is added where the product is consumed” was born.

Currently, the only taxes collected by producing countries are actually paid by the agricultural producers on their (often already very) low income earned by the sales of their product to the multinationals.