Many sought to achieve in the finance conference that just took place in Addis Abeba, the establishment a global tax body under the United Nations to save the hundreds of billions dollars developing countries are believed to lose in tax evasion by multinational companies. The strength of civil society organisations (CSOs) and governments of developing countries in pushing this agenda was more than matched by the governments of rich countries, which made sure that it did not happen.
This issue was the subject of closed meeting discussions at the Third International Conference on Financing for Development (FfD3), which took place in Addis Abeba from July 13 to 16, 2015. The conference brought together delegates from 193 countries, including representatives of governments, CSOs, academia and the media, with its main agenda being setting the course for sustainable development over the next 15 years.
The major outcome of the conference, the Addis Abeba Action Agenda, was agreed upon by the 193 UN Member States late Wednesday, following a three-day long negotiation. The Agenda, to be adopted at the UN meeting to take place in September in New York, provides a global framework for financing the post 2015-development agenda, or the 17 sustainable development goals. The financing of these goals could take as much as three trillion dollars.
Hours before the agreement was struck, CSOs held a press conference to put pressure on governments, warning of a risk to collapse of the negotiations “as rich countries block Global Tax Body”. The CSO push to find a way to curb tax dodging had started before the conference convened in Addis Abeba. The 11th hour pre-agreement meeting was the critical moment to make a concerted advocacy effort to influence decisions in favour of a global tax body, which failed to materialise, although the states went on to agree on global development goals.
Official development assistance (ODA) is declining and countries need taxes to fill the gap, says Tove Maria Ryding, tax justice coordinator for the European Network on Debt & Development (Eurodad). G77 countries, many of which lose billions of dollars every year through tax dodging, are demanding a seat at the table when decisions about global tax rule are made, but members of the OCED currently monopolise such decision making and want to keep the status quo, she said.
“A few powerful countries are ready to jeopardise the whole financing for development agenda just because they don’t want developing countries to have any say on global tax rules,” she said.
Currently, there is only the UN Expert Committee on Tax, where only rich countries have seats. These rich countries have accordingly made decisions on all global tax issues for the past 50 years. According to existing practice, multinational corporations pay taxes at the location of their headquarters, although most of their manufacturing activities depend on cheap resources in other countries, Ryding argues.
“The tax should be collected by those countries where the companies’ manufacturing activities take place,” she said.
The multinational companies only pay one percent of the taxes they should be paying to those countries. They avoid legal challenges from developing countries using lawyers, their global connections and hiding their money in Swiss banks, she accuses.
The South African chair of the G77 group of developing countries, of which Ethiopia is a part, had proposed some key improvements to the UN Experts Committee on Tax, a proposal which was challenged by developed countries, namely US, EU, Japan and Canada. This proposal was to change the committee into an Agency, the South African representative said later during a press conference on Thursday afternoon.
In the final hour the position of developing countries from the very start of FfD negotiations has been to seek an upgrade of the UN Tax Committee into an intergovernmental body. In fact, earlier versions of the outcome document, which had been under process for the past nine months, had contained the following language, according to Ryding, who was chairing the CSO side-event on Wednesday: “We decide to upgrade the Committee to an intergovernmental committee, to complement the work of other ongoing initiatives and further enhance the voice and participation of developing countries in norm setting for international tax cooperation.”
Ryding says that discussion of key issues should continue until the agreement is adopted in September. Key issues for developing countries, according to her, include first and foremost a tax body, second, an adequate follow-up mechanism for reviewing the implementation of FfD outcomes starting from the 2002 Monterrey conference, the Rio principle of common but differentiated responsibilities and the link between FfD and the post-2015 development agenda.
The Civil Society Declaration, as posted on the Addis Abeba Civil Society Forum’s website, states, “We reiterate the need and strongly recommend the establishment of an intergovernmental, transparent, accountable, adequately resourced tax body with universal membership, which leads global deliberations on international tax cooperation.”
Such a body, the Declaration stated, will strengthen the ability of developing countries to generate significant sustainable financing for development.
The current FfD outcome has already been criticised by CSOs for having been seriously and problematically diluted over the process of negotiations with weak provisions that will be highly inadequate in meeting the world’s current development needs.
Paragraph 27 of the agreement refers to commitment to international tax cooperation as well as strengthening transparency and adopting appropriate policies, including multinational enterprises reporting country-by-country to tax authorities where they operate. It also refers to access to beneficial ownership of information for competent authorities, and progressively advancing towards automatic exchange of tax information among tax authorities as appropriate.
Paragrpah 28 continues with the need for international tax cooperation, welcoming the participation of developing countries or their regional networks and calling for more inclusiveness to ensure that these efforts benefit all countries. “We welcome ongoing efforts, including the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and take into account the work of the Organisation for Economic Cooperation and Development (OECD) for the Group of 20 on Base Erosion and Profit Shifting,” it adds.
Tove rejects both paragraphs as items that maintain the interests of rich countries.
“Our fundamental concern is that global tax standards are being decided behind closed doors in the OECD, where only 34 countries are members. This means that more than 100 developing countries are excluded from the decision making,” she said.
She says that the whole point of paragraph 27 is about capacity building, meaning support for training tax administrations in developing countries.
“While this is important, we often see that this capacity building is targeted towards making sure that the developing countries adjust their systems to follow the ‘global’ standards that OECD has decided,” she argued, adding that “[Paragraph 28] talks about the OECD system, which is the whole essence of the problem. The system is that the decisions on global tax standards get taken by the OECD members.”
Occasionally developing countries get invited to decision making meetings, but that has happened with only few, she said.
Rich countries are refusing to recommit to their decades-old promise to deliver 0.7 percent of their national income in aid, which would release an estimated 250 billion dollars a year, Ryding says. OECD countries already have a tax report in their hands, which Ryding says that they have declined to share with CSOs. Estimates of lost tax revenue by developing countries from tax dodging by multinational companies could amount to 100 billion dollars to 213 billion dollars, according to UNCTAD and IMF figures quoted by The Guardian newspaper.
All UN member states “agree that international efforts should be strengthened in terms of taxation and related matters”, said Wu Hongbo, the UN Under Secretary-General for Economic & Social Affairs. “I would also like to say this is not the end of the journey . . . This is a gradual process.”
Leave a Reply