Tax Justice Network welcomes UN panel to tackle ‘tax gaps’ in global financial architecture

By agency reporter
March 4, 2020

The Tax Justice Network has welcomed the launch of the UN High-Level Panel on Financial Accountability, Transparency and Integrity (FACTI). The organisation also commends the leadership of Nigeria, which currently holds the presidency of the UN General Assembly, and Norway, which is at the helm of the UN Economic and Social Council, in establishing the new body.

The FACTI panel is intended to address corporate tax abuse and other illicit financial flows, in order to ensure the goals and targets set out in the Sustainable Development Goals are achieved. Its terms of reference recognise that there are major gaps in the global architecture around these issues.

On one side, the UN Convention Against Corruption (UNCAC) addresses primarily domestic issues, but its provisions are insufficient if not backed by broader global action. As the Financial Secrecy Index demonstrates, the problem of corruption is overwhelmingly an international one, driven not by lower-income countries but by high-income financial secrecy jurisdictions. On the other side, international tax issues are dominated by the rich country members’ club, the OECD; and the OECD consistently fails to reflect the concerns of lower-income countries, even as evidence confirms time and again that they are the heaviest losers to tax abuse. There can be no clearer illustration of this than the current OECD reform process for corporate tax, in which lower-income countries in the so-called ‘Inclusive Framework’ have seen their agreed work programme discarded in favour of a weak and complex alternative agreed bilaterally by the USA and France.

The Tax Justice Network (TJN) says the reaction of OECD countries to the FACTI panel has been shameful. Rather than embrace an opportunity for new thinking on these global issues in a globally representative forum, they have instead sought to circumscribe the terms of reference and to protect their own power and privilege. As explained by civil society groups monitoring talks at the UN, one of the core areas of controversy is the definition of illicit financial flows. Many OECD countries have sought to limit this to a narrow framing of criminal finances, thereby excluding the torrent of revenue pillaged from poorer countries through abusive, but sometimes legally ambiguous, tax practices. The TJN urge Nigeria and Norway to stand firm, and all governments and civil society actors concerned with tax abuse and global governance to rally around the new panel and engage constructively in its discussions.

The FACTI panel will ultimately be judged on its own terms: whether or not it is able to move forward proposals that will address the major gaps in the global architecture. In particular, this relates to two key areas for progress:

  • A globally representative forum, under UN auspices, to take forward policy discussions on the reform of international corporate taxation. The OECD has blown its last chance by seeking to impose a narrow and internationally regressive deal on lower-income countries at the behest of two of its most powerful member states.
  • Fully inclusive progress on the ‘ABCs of tax transparency’, potentially through a new UN convention which would also establish a monitoring body to track the scale of tax losses, broader illicit financial flows and the degree of progress on transparency.

Alex Cobham, chief executive of the Tax Justice Network, commented: “The FACTI panel provides a powerful opportunity to address two major ‘tax gaps’ in the global financial architecture: first, the lack of representation at the OECD for lower-income countries that lose most to corporate and individual tax abuse; and second, the lack of a truly inclusive forum in which countries can set international tax rules. If it can override the objections of OECD countries to losing some of their disproportionate influence, and instead chart a course to immediate rectification of these gaps, the FACTI panel will deliver historic progress.”

The ABC of tax transparency is the longstanding policy platform of the Tax Justice Network:

  • Automatic exchange of tax information. Lower-income countries to be fully included in genuinely automatic and multilateral exchange of information on foreign financial accounts. (The current OECD Common Reporting Standard disproportionately excludes lower-income countries, and the OECD has abjectly failed to require the USA to provide information, leaving it as a global financial secrecy threat.)
  • Beneficial ownership. The emerging international standard of public registers of the ultimate beneficial owners of companies, trusts and foundations must be formalised and made a requirement
  • Country-by-country reporting. Large multinational companies now have to report to tax authorities about their economic activity, profits made and tax paid, on a country-by-country basis. This is based on an OECD standard that was developed from a longstanding Tax Justice Network proposal, but weakened in a crucial way by requiring the data to be held in private. In addition, the information exchange process means once again that lower-income countries are systematically excluded from access compared to OECD members – despite suffering higher losses from corporate tax abuse, as a proportion of current tax revenues.

* Tax Justice Network https://www.taxjustice.net/

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