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Yves here. International tax sounds dull and complicated. The experts would like to keep it that way since a lot of money is made, just as in finance, via complexity and opacity. African countries have been pushing for a very long time for tax reforms that would bar or at least impede the way multinational corporations cheat them on tax receipts. The fact that these reforms are finally moving forward and most important, critically important advanced economy organization are getting on board looks to be a sign that the Global South refusing to bend to the Collective West’s will on denouncing Russia and falling in line with Western sanctions has focused a few minds. At a minimum, the rich countries seem willing to not just throw a few bones to the poorer parts of the world, but also make sure they have some meat on them.
One of the big tax issues that afflicts African countries is that most have corporate tax as their biggest source of tax revenues. But big international companies shift income out of these high tax countries, leaving African countries budget-starved. The transfer pricing games can also have the effect of shifting other revenues out of Africa. Nicholas Shaxxon, in his landmark book Treasure Islands, pointed out that Africa was a capital exporter, when one would expect low income developing countries to be capital importers. Now this is probably be entirely due to multinational extraction; no doubt a lot of Big Men are engaged in a lot of extraction and move money to international tax havens.
We’ll find out in due course if theses proposed changes are implemented in a serious enough manner to make a real difference. But at least this is a step in the right direction.
By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development, and Nazihah Noor, a public policy researcher. Originally published at Jomo’s website
After decades of resistance by rich nations, African governments successfully pushed for the United Nations to lead on international tax cooperation. All developing countries and fair-minded governments must rally behind this initiative.
UN Leadership
The official UN Secretary-General’s Report (SGR) was mandated by a UN General Assembly resolution, unusually adopted by consensus in late 2022.
All countries must now work to ensure progress on financing to achieve the Sustainable Development Goals (SDGs) and climate justice after major setbacks due to the pandemic, war and illegal sanctions.
Rich countries had blocked an earlier tax cooperation initiative at the Addis Ababa Financing for Development (FfD) summit in mid-2015. With grossly inadequate funding, the SDGs were condemned to a still birth.
The SGR on options to strengthen international tax cooperation is, arguably, the most important recent proposal – remarkably, from a beleaguered and much ignored UN – to enhance FfD for SDG progress.
It proposes three options: a multilateral tax convention, an international tax cooperation framework convention, and an international tax cooperation framework. The first two would be legally binding, while the third would be voluntary in nature.
Eurodad Proposal
In response, the European Network on Debt and Development (Eurodad) has made a proposal – supported by the Global Alliance for Tax Justice (GATJ) – noting: “It is time for governments to deliver … [and] … cooperate internationally to put an end to tax havens and ensure that tax systems become fair and effective.
“International tax dodging is costing public budgets hundreds of billions of Euros in lost tax income every year, and we need an urgent, ambitious and truly international response to stop this devastating problem.
“We believe the right instrument for the job is a UN Framework Convention on International Tax Cooperation and we call on all governments to support this option…
“For the last half century, the OECD has been leading the international decision-making on international tax rules and the result is an international tax system that is deeply ineffective, complex and full of loopholes, as well as biased in the interest of richer countries and tax havens.
“Furthermore, the OECD process has never been international. Developing countries have not been able to participate on an equal footing, and the negotiations have been deeply opaque and closed to the public.
“We need international tax negotiations to be transparent, fair and lead by a body where all countries participate as equals. The UN is the only place that can deliver that.”
A Big Step Forward?
Strengthening international tax cooperation is expected to be the major issue at the one-day UN High-level FfD Dialogue on 20 September 2023.
A UN resolution on international tax cooperation – for General Assembly debate after September 2023 – should plan a UN-led inter-governmental process. After all, developing such solutions is a key purpose of the multilateral UN.
The Africa Group at the UN had appealed for a Convention on Tax in 2019, to help curb illicit financial outflows. After all, such tax-related flows are international problems, requiring multilateral solutions.
International tax cooperation should be inclusive, effective and fair. The EURODAD-GATJ proposals deserve consideration by all Member States negotiating a UN tax convention. The outcome should include:
• Create an inclusive international tax body. The Convention should create international tax governance arrangements, using a Conference of Parties (CoP) approach, with all countries participating as equals. Currently, international tax rules are decided in various bodies where developing countries never participate as equals.
• Enable an incremental approach to achieve other intergovernmental agreements. The outcome should be a framework convention, with basic structures, commitments and agreements enabling further updating and improvements later.
• Incorporate developing countries’ interests, concerns and needs to achieve tax justice. The Convention should address developing countries’ interests, concerns and needs, replacing current tax standards and rules favouring wealthier nations.
• Enhance international coherence. The Convention should develop a coherent system for all nations, including developing countries. It should eventually replace the plethora of existing bilateral and plurilateral tax treaties and agreements with a coherent overall framework. This should improve effectiveness and cut tax dodging.
• Strengthen international efforts against illicit financial flows, especially involving tax avoidance and evasion, with simpler, more coherent and straightforward rules and standards to improve transparency and cooperation among governments.
• Eliminate transfer pricing. The Convention should eliminate transfer pricing by replacing existing rules enabling such abusive practices.
• Tax transnational corporations globally. Transnational corporations’ consolidated profits should be taxed on a global basis. Tax revenue should be distributed among governments with a minimum effective corporate income tax rate based on a fair and principled agreed formula recognizing developing countries’ contributions as producers.
• End coerced acceptance of biased dispute resolution processes. The Convention should not require countries to accept biased processes, such as binding arbitration, favouring those who can afford costly legal resources. Effective dispute prevention would reduce the need for dispute resolution. Alternative mechanisms for resolving disputes could also be negotiated – using inclusive and transparent decision-making processes – under the Convention.
• Enhance sustainable development and justice. The Convention should promote progressive taxation at national and international levels. It should ensure improved international tax governance supports government commitments and duties, especially relating to the UN Charter and Sustainable Development Goals.
• Improve government accountability. The Convention should ensure transparent and participatory tax decision-making, with governments held accountable to national publics.
• Ensure transparency. The Eurodad proposal emphasizes the ‘ABC of tax transparency’, i.e., Automatic Information Exchange, Beneficial Ownership Transparency, and Country-by-Country reporting.
Actual progress will not come easily, especially after the strong-arm tactics – used by the G-7 group of the biggest rich economies and the Organization for Economic Cooperation and Development (OECD) – to impose its tax proposals at the expense of developing countries.