Double standard on taxation
THE PAST two years have thrown into sharp relief the structural injustices that underpin the global economy. As the COVID-19 pandemic drove an estimated 88-115 million people into extreme poverty, the world’s billionaires saw their wealth increase by more than 25 per cent. And while countries in the Global North are now administering vaccine boosters, those in the Global South continue to struggle to secure even first doses for their populations.
Global South broadly encompasses the regions of Latin America, Asia, Africa and Oceania, whereas Global North includes a mix of countries and areas such as Australia, Canada, Europe, Russia, Israel, Japan, New Zealand, Singapore, South Korea, Taiwan and the United States.
This appalling level of inequality is inextricably linked to rampant cross-border tax abuse, which is being perpetrated by both multinational corporations and wealthy individuals. By refusing to pay their fair share of taxes, the world’s wealthiest actors rob poorer countries of the revenue they desperately need to confront the pandemic, such as by securing vaccine doses and supporting vulnerable citizens.
G20 leaders claim — with much self-satisfaction — that they are addressing the problem: they recently agreed to establish a global minimum corporate tax rate, thereby ending the ‘race to the bottom’ fuelled by global competition for foreign investment. But the agreed rate is just 15 per cent, and targets only a sliver of the profits of 100 multinationals. This will do about as much to help poor countries as a glass of water would do to put out a wildfire.
The new State of Tax Justice report — published jointly by the Tax Justice Network, Public Services International and the Global Alliance for Tax Justice — illustrates the scale of the conflagration: US$483 billion in public revenue is lost to cross-border tax abuse each year. That is enough to vaccinate every man, woman, and child on the planet three times over.
Of the total losses, corporate-tax abuse by multinational companies accounts for US$312 billion, with offshore tax evasion by wealthy individuals accounting for the rest. While wealthier countries technically bear a larger share of those losses, it is poorer countries that suffer the most.
In fact, while high- and upper-middle-income countries lose some US$443 billion to abusive international tax practices annually, that amounts to just 10 per cent of their public health budgets. Lowand lower-middle-income countries lose about US$40 billion — the equivalent of a staggering 48 per cent of their public health budgets.
Moreover, it is wealthy countries that are to blame for this state of affairs. Not only have they refused to tackle the problem in a meaningful way; they provide the financial services that enable international tax abuse.
The United Kingdom, together with its network of overseas territories and Crown dependencies, is responsible for 39 per cent of the overall losses. The Netherlands, Luxembourg and Switzerland account for another 16 per cent. Taken together, the OECD countries are responsible for 78 per cent of revenue losses to international tax abuse each year.
The double standards are astounding. After all, it was under the OECD’s inclusive framework on tax base erosion and profit shifting, known as BEPS, that the much-touted G20 tax deal was designed. Some of the same countries that are enabling all this tax abuse — most notably, the UK and Switzerland — are also blocking a waiver on intellectual property rights that would enable a massive vaccine roll-out in the Global South.
This raises serious questions about whether the OECD is the right institution to coordinate global tax negotiations. True, the OECD opened the way for over 100 non-OECD members to have a voice in the negotiations. But several developing-country proposals were left out of the final agreement.
Not surprisingly, poor countries were far from satisfied. As the G20 was meeting in Rome late last month to endorse the deal, the G77, representing 134 developing economies, reit- erated its long-standing call to establish a global tax body at the United Nations, which would take responsibility for reforming global tax regulations and cracking down on offshore tax havens.
The proposal — under which the UN Committee of Experts on International Cooperation in Tax Matters would be transformed into an intergovernmental forum — was first advanced in 2004 by then United Nations Secretary General Kofi Annan and me, as undersecretary general for economic and social affairs. The G77 echoed our call in 2015, at the UN Conference on Financing for Development in Addis Ababa.
A global UN tax body is also a key recommendation of the UN High Level Panel on International Financial Accountability, Transparency, and Integrity for Achieving the 2030 Agenda, and of the Independent Commission for Reform of International Corporate Taxation, or ICRICT. (I proudly served on both.) And it aligns with the demands of global civil society.
If the G20 had finalised a deal that was fair to developing economies, the G77 would not have reiterated its call for a UN tax body. That is why the ICRICT has demanded that negotiations to deliver a new global tax deal continue during the G20 presidencies of Indonesia in 2022 and India in 2023.
But real progress will require changing the format of negotiations, to ensure that developing countries’ voices are heard. If the G20 is serious about rectifying the injustice of cross-border tax abuse, it should support the call for a genuinely inclusive process at the UN.