The original article in Spanish can be read here.
Without global tax rules that close loopholes and eliminate corporate tax avoidance and abuses by high-net-worth individuals, countries in the Global South will continue to have limited capacities to mobilise the domestic resources needed to meet basic human and economic development.
Dereje Alemayehu
The current global tax rules are ineffective at preventing, dismantling, and sanctioning the tax abuses carried out by large companies and high-net-worth individuals. Over the past decades, illicit financial flows have grown exponentially, but global coordination to resolve this problem remains insufficient. Every day countries lose more than $1 billion in tax revenue due to abuses by multinational corporations and the elite. This hurts developing countries the most, but make no mistake: tax abuse makes us all losers.
Many countries face a significant lack of resources to finance quality public services, including infrastructure, education, care and healthcare. Tax revenues are crucial to obtaining the resources necessary to fund these life-saving services. At a time when corporate profits and elite wealth are increasing, why is it so difficult for our countries to obtain adequate resources?
Tax evasion and illicit financial flows occur due to a lack of international cooperation. Tax havens, along with the facilitators of abusive tax and financial maneuvers, erode the collection capacity of countries around the world. One of the central principles of tax justice, based on the sovereignty of states, is that a country’s tax policy should not undermine tax revenues. The absence of international cooperation to address multinational profit siphoning and illicit financial flows means that such acts continue with impunity.
We need a change. Moving towards international coordination on global tax rules has never been more urgent.
In November 2023, the African Group tabled a resolution at the United Nations General Assembly (UNGA) to begin negotiating in the multilateral organisation the development of a Framework Convention on International Tax Cooperation. The resolution was passed with a large majority, despite opposition from OECD member states. The negotiations have brought together all UN member states to discuss everything from a wealth tax to the fair allocation of tax collection rights. The UN Tax Convention presents a historic opportunity for the international tax architecture to deter, rather than facilitate, tax abuses.
The countries will meet again from July 29 to August 16 at the UN headquarters in New York, to finish negotiating the work plan to advance the drafting of new international tax rules. Without adequate global tax rules that close loopholes and eliminate corporate avoidance and abuses by high-net-worth individuals, countries in the Global South will continue to have limited capacities to mobilize the domestic resources needed to finance basic human rights and economic development.
Decades of work by developing countries and civil society to demand international tax cooperation have led us to this moment. From the Global Alliance for Tax Justice, a coalition of civil society organisations that promotes progressive and redistributive tax policies, together with the broad movement for tax and economic justice, we are convinced that civil society organisations, social movements , the organised labor/union movement, feminist and the Indigenous, peasant and Afro-descendant movements of Latin America and the Caribbean have the capacity to become decisive actors to promote the governments of the region together with the countries of the African Union and the G77 to support the initiative.
Rich countries have struggled to maintain global tax rules in exclusive platforms such as the OECD and the G20. They are distractions that have done nothing to adequately address the severity of the problem. And the OECD, or the “rich countries’ club,” is certainly not the platform for all states to participate on equal terms. Developing countries have historically been marginalized, or completely excluded, from the Global North-sponsored conversations that have structured the inadequate global tax rules as we know them today.
The OECD has created a so-called “Inclusive Framework on Base Erosion and Profit Shifting” (BEPS) to establish global tax rules. But it is riddled with so many exceptions, or “exclusions,” that it seems like it was written by the same multinational corporations that evade taxes around the world. Despite more than a decade of closed-door negotiations, the OECD has failed to deliver on any of its promises. Worse yet, OECD member states, such as the United States, have not even signed on to the organisation’s proposed minimum standards. These are the same standards that OECD members are pressuring developing countries to adopt.
However, in the UN Tax Convention negotiations, OECD member states have argued against “duplication” of work. The problem is not that the OECD has developed this Inclusive Framework; it would be foolish to replicate work that has been effective in the United Nations. The problem is that these rules are not effective, much less democratic. All UN member states can meet during the UN Tax Convention negotiations and discuss the merits of the OECD member states’ proposals and, if agreed, include them in the UN Tax Convention.
We need states to negotiate, in good faith, to a UN Tax Convention. A UN Tax Convention is needed to create an intergovernmental mechanism that is transparent, accountable, equitable, and where all countries can be on a level playing field. By having these negotiations at the UN, tax policy can also be linked to existing UN agreements, such as the Sustainable Development Goals (SDGs). The UN Tax Convention is important to end “race to the bottom” competition between countries and ensure international cooperation for a global tax system that allows countries to mobilize critical financing.
In a scenario of the present global crisis in which inequalities are deepening, the current global tax rules further deepen such inequalities. All countries have the opportunity to now collectively lay the groundwork for creating new global tax rules that work. The leadership of the Africa Group at the UN has brought us to this moment and its continued unity with the G77 is crucial to rewriting global tax rules. As negotiations resume this July, we must ensuring that our negotiators know the importance of this moment.