Developing nations seek tax body to curb illicit financial flows

The developing nations are persisting in their efforts, in the face of developed-country opposition, to establish an intergovernmental body to tackle corporate tax dodging and improve international cooperation on tax issues.

by Thalif Deen

NEW YORK: Despite Western opposition, the 134-member Group of 77 is continuing to pursue a longstanding proposal for an intergovernmental UN-affiliated tax body aimed at combating corporate tax dodging and curbing illicit financial flows, including money laundering and offshore banking.

The proposal has already been shot down twice by Western nations, first at the Financing for Development (FfD) conference in Addis Ababa in July 2015, and more recently at the 14th session of the UN Conference on Trade and Development (UNCTAD 14) in Nairobi in July this year.

But a G77 source told Inter Press Service (IPS) the proposal is very much alive – and still on the negotiating table.

The proposal by the G77, the largest single coalition of developing countries, calls for the establishment of a standing intergovernmental group of experts to address tax issues, including international tax issues, and to assist countries in better mobilizing and employing fiscal revenues.

This includes international initiatives to counter tax avoidance and tax evasion, as well as strengthening the capabilities of developing countries to address tax avoidance and tax evasion practices.

In Africa alone, the estimated resources leaving the continent in the form of illicit financial transfers amounted to nearly $530 billion between 2002 and 2012, according to UNCTAD.

The three key causes of illicit financial outflows are largely commercial tax evasion, government corruption and criminal activity, including money laundering.

Bhumika Muchhala, Senior Policy Researcher, Finance and Development Programme, at the Malaysia-based Third World Network, told IPS the key reason the global tax system has failed is that more than half of the world’s countries are currently excluded from the decision-making processes on global tax standards.

“We in global civil society hope that the G77 and China, both in New York and Geneva, will continue to persistently raise the need for an intergovernmental tax body, under the auspices of the United Nations, in every relevant conference, negotiation and discussion within the UN, regional commissions, Bretton Woods Institutions and other international institutions, particularly the Organization for Economic Cooperation and Development (OECD) which has a monopoly role in global tax governance by developed country donors,” she said.

“We know by examples of history that truly meaningful reforms and establishment of new bodies that break old rigid structures of imperialism, exclusion and unequal power require a long arc of time and need to be pushed through every open crack in the status quo by repeated and persistent demands by a group that takes the leadership to exert collective pressure,” she added.

As to whether the G77 and China will bring up the proposal again, Muchhala said the hope is they will continue to persistently bring it up in every possible space, conference and discussion.

Manuel Montes, Senior Advisor on Finance and Development at the Geneva-based South Centre, told IPS the proposal was meant to create an intergovernmental process whose deliberations would bring up issues of interest to developing countries.

Right now, he said, agenda-setting on international tax issues is made in the OECD, which the G20 leading economies commissioned to put out the 15 action items under Base Erosion and Profit Shifting work.

The upgrading of the UN Committee of Experts on International Cooperation in Tax Matters to an intergovernmental level was the last outstanding item that prevented agreement at the FfD conference in Addis Ababa.

“The developed countries, led by the US, blocked the proposal,” Montes said.

The OECD dominance in this regard could have been mitigated somewhat if the UN process in tax cooperation had been upgraded to an intergovernmental level as proposed in the Addis Ababa conference.

The OECD secretariat “reports” to its member states, and changes in the agenda have to be first accepted by its member states, even though it has been making a lot of effort to increase the participation of developing-country officials and the UN – but by invitation.

The OECD would still be an important and perhaps a dominant player in a UN process, but it would not be the sole source of the intergovernmental agenda and norm setting, Montes declared.

The G77 proposal did not survive the UNCTAD 14 outcome in Nairobi even though there is text in the outcome document that allows UNCTAD to work on tax issues as a matter of research, including assistance to developing countries to design and implement policies and actions aimed at improving the efficiency of trade transactions as well as the management of transport operations. Additionally, the outcome document also calls on UNCTAD to continue to cooperate with member states in implementing ASYCUDA, the automated system for customs data, and work on taxation as it relates to investment policy.

Martin Khor, Executive Director of the South Centre, told IPS the developing countries under the G77 and China succeeded in defending their development interests and in obtaining a renewed mandate for UNCTAD to continue its work.

“They had to face major developed countries and their groupings that were quite insistent on narrowing the scope of UNCTAD’s future work and thus the scope of the UN.”

As a result, he said, there was unfortunately no mandate for the UN to set up an intergovernmental group on how to deal with tax issues, as the developed countries prefer to use their group, the OECD, to make decisions on issues like tax evasion and tax havens.

There are other examples in the areas of trade, debt and finance where the outcomes could have been much better but were instead disappointing.

Nevertheless, the renewal of UNCTAD’s mandate for its work in the next four years was an achievement of UNCTAD 14, given the shaky state of North-South cooperation on global economic issues, said Khor. (IPS)                 

See also the article “An intergovernmental UN tax body – why we need it and how we can get it” in this issue’s Analysis section.

Third World Economics, Issue No. 624, 1-15 September 2016, p10