A de­feat for in­ter­na­tional tax co­op­er­a­tion

Financial Mirror (Cyprus) - - FRONT PAGE -

Most of the world’s gov­ern­ments – ea­ger to mo­bilise more tax rev­enues to fi­nance de­vel­op­ment and curb per­va­sive tax­avoid­ance schemes, such as those re­vealed in the so-called Lux­em­bourg Leaks scan­dal last year – have an in­ter­est in col­lab­o­rat­ing on tax­a­tion mat­ters. Yet at the Third In­ter­na­tional Con­fer­ence on Fi­nanc­ing for De­vel­op­ment, held in Ad­dis Ababa last month, the mo­men­tum to­ward strength­en­ing in­ter­na­tional tax co­op­er­a­tion came to an abrupt halt.

De­vel­oped coun­tries blocked a pro­posal at the con­fer­ence to es­tab­lish an in­ter­gov­ern­men­tal tax body within the United Na­tions to re­place the cur­rent UN Com­mit­tee of Ex­perts. These coun­tries in­sist that tax co­op­er­a­tion should take place ex­clu­sively un­der the lead­er­ship of the OECD, a body that they con­trol.

The rest of the world should hope this will prove to be a pause rather than an end to progress on in­ter­na­tional tax co­op­er­a­tion, which be­gan 13 years ago, at the first In­ter­na­tional Con­fer­ence on Fi­nanc­ing for De­vel­op­ment in Mon­ter­rey, Mexico. Two years later, in 2004, the United Na­tions Eco­nomic and So­cial Coun­cil (ECOSOC) up­graded its “ad hoc group” of tax ex­perts to a reg­u­lar com­mit­tee. This meant that the ex­perts would meet regularly and have an ex­panded man­date that went be­yond merely up­dat­ing a model dou­ble-tax­a­tion treaty.

Four years later, at the Sec­ond Con­fer­ence on Fi­nanc­ing for De­vel­op­ment, in Doha, Qatar, pol­i­cy­mak­ers ac­knowl­edged that more needed to be done in tax mat­ters, and asked ECOSOC to con­sider strength­en­ing in­sti­tu­tional ar­range­ments. And then, in the year lead­ing up to the Ad­dis Ababa con­fer­ence, the UN Sec­re­tary-Gen­eral en­dorsed the need for “an in­ter­gov­ern­men­tal com­mit­tee on tax co­op­er­a­tion, un­der the aus­pices of the United Na­tions.”

His endorsement, along with strong sup­port from non­govern­men­tal or­gan­i­sa­tions and the In­de­pen­dent Com­mis­sion for the Re­form of In­ter­na­tional Cor­po­rate Tax­a­tion, gave greater force to the de­mand by de­vel­op­ing coun­tries, or­gan­ised around the Group of 77 and China, for an equal voice in set­ting global tax norms. Up un­til the 11th hour of ne­go­ti­a­tions in Ad­dis Ababa, they stood firm in call­ing for an in­ter­gov­ern­men­tal body with the man­date and re­sources to cre­ate a co­her­ent global frame­work for in­ter­na­tional tax co­op­er­a­tion.

But to no avail: De­vel­oped coun­tries, led by the United States and the United King­dom –home to many of the multi­na­tional cor­po­ra­tions im­pli­cated in the “Lux Leaks” – suc­ceeded in block­ing this much-needed ad­vance in global gov­er­nance. In the end, the Ad­dis Ababa Ac­tion Agenda pro­vides that the cur­rent Com­mit­tee of Ex­perts will con­tinue to func­tion ac­cord­ing to its 2004 man­date, with three ad­di­tional meet­ing days per year, all funded through vol­un­tary con­tri­bu­tions. That is a pro­foundly dis­ap­point­ing out­come.

The de­vel­oped coun­tries have an ar­gu­ment – but not a con­vinc­ing one. The OECD, whose mem­bers are es­sen­tially the world’s 34 rich­est coun­tries, cer­tainly has the ca­pac­ity to set in­ter­na­tional stan­dards on tax­a­tion. Yet the dom­i­na­tion of a se­lect group of coun­tries over tax norms has meant that, in re­al­ity, the global gov­er­nance ar­chi­tec­ture for tax­a­tion has not kept pace with glob­al­i­sa­tion.

The Mon­ter­rey Con­sen­sus reached in 2002 in­cluded a call to en­hance “the voice and par­tic­i­pa­tion of de­vel­op­ing coun­tries in in­ter­na­tional eco­nomic de­ci­sion-mak­ing and norms-set­ting.” But although the OECD in­vites some de­vel­op­ing coun­tries to par­tic­i­pate in its dis­cus­sions to es­tab­lish norms, it of­fers them no de­ci­sion-mak­ing power. The OECD is thus a weak sur­ro­gate for a glob­ally rep­re­sen­ta­tive in­ter­gov­ern­men­tal fo­rum.

Such a body must op­er­ate un­der the aus­pices of the United Na­tions, which bears the in­sti­tu­tional le­git­i­macy nec­es­sary to re­spond ef­fec­tively to the chal­lenges of glob­al­i­sa­tion with co­her­ent global stan­dards to com­bat abu­sive tax prac­tices and en­sure fair tax­a­tion of cor­po­rate prof­its world­wide.

De­spite the dis­ap­point­ment in Ad­dis Ababa, the call for re­form of the in­ter­na­tional tax sys­tem is not likely to be si­lenced. In­stead, it will grow louder on all sides, as the de­vel­oped coun­tries’ counter-pro­duc­tive re­sis­tance to any give and take on in­ter­na­tional co­op­er­a­tion re­sults in a tsunami of uni­lat­eral tax mea­sures be­yond OECD con­trol.

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