Why The United Nations Is the Only Place Where a Just Global Tax Reform Can Be Done

GATJ

24 July 2023

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GATJ

24 July 2023

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During this year’s High-Level Political Forum (HLPF) on Sustainable Development at the United Nations, which happened from 10 to 19 July in New York City, the Civil Society Financing for Development Mechanism (CS FfD) organised a side event in collaboration with the Global Alliance for Tax Justice (GATJ) and Tax Justice Network Africa (TJNA) titled “Reforming the Global Tax System”, in which speakers shared their arguments on not only why this reform is needed, but also why it should take place within the UN.

Executive coordinator for GATJ, Dereje Alemayehu, opened up the discussion pointing out that the current rules of the international tax system were established over 100 years ago by colonial powers that were part of the League of Nations, when many independent countries today did not even exist. From that time on, he noted, the global economy has also drastically changed, with globalisation reaching another level with the digitalisation of the economy.

“How to ensure these now independent countries’ taxing rights in this changed situation? The successor of the League of Nations is the United Nations, so logically the UN should have taken up this role [of setting the global tax rules], but this was prevented by the rich countries, who wanted this to happen within the OECD, because they’re the ones who make the rules there.” he stated.

While the African Group’s resolution for an international tax cooperation within the UN was approved last November in the 77th session of the General Assembly, Alemayehu said OECD countries have not been able to block the process as they did in the past. “As the fight in the UN was lost [with the approval of the resolution], rich countries increased the pressure on developing countries to concede their taxing rights in other forums which they dominate, such as the Inclusive Framework.”

According to Alemayehu, OECD countries are now trying to force developing economies to agree with the rules of the Two Pillar Solution, not only at the Inclusive Framework, but also when negotiating trade deals or loans, as the International Monetary Fund (IMF) has recently done with Sri Lanka, and at the Kenya – US trade negotiations.

For Alemayehu, OECD’s Two Pillar Solution is not a solution at all for a broken and outdated system that needs a fundamental overhaul. He explained that Pillar 1 has only 86 companies in its scope, and claims to redistribute not more than 10% of their global profits. And Pillar 2 sets a minimal corporate tax at 15%, which is closer to the 12,5% proposed by notorious tax havens, than to the 21% rate proposed by the US or the 25% asked by civil society organisations.

“According to the EU Tax Observatory, this solution would, at best, give a 2% revenue raise to the developing countries, but 16% to rich countries. In addition, it will induce a ‘race to the minimum’ by forcing countries to reduce their corporate income tax rates. So the reform the OECD is pushing is not only biassed against developing countries, it clearly favours rich countries. Also, they want to prevent developing countries from introducing unilateral measures to enhance their tax revenues. Preventing developing countries from sovereign measures to tax profits generated in their economies – this is the major objective of the OECD Two Pillar Solution. ”

Watch the full panel down below:

Tony Salvador, from Tax and Fiscal Justice Asia (TAFJA) and legal staff at the Third World Network, also pointed out that there have been “serious attempts” to undermine the negotiations to reform the international financial architecture at the UN, so the process hasn’t even begun. As he explained, the current system leaves the way open to numerous strategies to avoid paying taxes.

“Today we have very sophisticated global value chains, e-commerce has been increasing throughout the years and services have become more important. All these phenomena allow multinational corporations, especially, and even rich individuals, to do the tax planning moving around intangible properties to lower or zero taxes jurisdictions. There are countless forms of money laundering that are being used by companies and this has to be addressed,” he stated.

These strategies are actually the key reason many of the biggest multinational corporation were able to even establish themselves, said Jason Braganza, executive director at African Forum and Network on Debt and Development (Afrodad), who focused on how harmful illicit financial flows (IFFs) are to developing economies, and how they only exist because of the unaddressed flaws in the international financial system.

“Through the work of CSOs, it was realised that there are also illegal ways to move money made in legal ways under minor taxing systems. This was how multinational corporations were actually establishing themselves and also how jurisdictions were using weaknesses in the global economic governance to attract resources and to make their jurisdictions domiciles for the movement of these resources,” he explained.

“These practices are being legitimised [by the current rules], so it is our role as civil society from the Global South to challenge this architecture that is legitimising the generation and movement of financial flows from the Global South to the Global North,” Braganza argued.

Emilia Reyes, program director, policies and budgets for equality and sustainable development at Gender Equity: Citizenship, Work and Family, closed the conversation by taking a step back and reminding how the scenario we are seeing today was built hundreds of years ago and hasn’t really changed in its core.

“When major powers started their colonial endeavours, they used tax as a way to subjugate new territories and it seems they have just changed their way of doing it. The use of taxation as a tool of the master to undermine the capacity of countries to make sovereign decisions on how to spend their resources, on how to ensure the well-being of their population, is still happening in front of our eyes,” she said.

Because of that, Reyes added, most of the debates happening recently around the topic are “illegitimate”, as the recent fiscal summit in Paris, promoted by the French government. “The international financial architecture is at stake globally, there are many debates on how we are going to reshape it, but these debates are happening again in an illegitimate manner by the same actors that are trying to undermine the rule of law and the possibility of sovereign countries to decide on their own resources.”

Another forum will follow up the discussion about the international tax system, this time in Cartagena, Colombia. The “Latin American and Caribbean Summit for an inclusive, sustainable and equitable global taxation” will be held on 27 and 28 July, with the participation of ministers of Finance and Economy of LAC countries.

GATJ’s Dereje Alemayehu will be talking further about the topics he covered at HLPF in a panel organised by the Independent Commission for the Reform of International Corporate Taxation (ICRICT) as part of the Cartagena Summit programme on 28 July, titled “Impactos de la fiscalidad internacional e incidencia en espacios globales”, moderated by Luis Moreno, Latindadd’s coordinator and Chair of the Coordination Committee of the Global Alliance for Tax Justice. Later on the same day, he’ll join a discussion about the intersection between tax justice and education.

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