The G77 will push for ‘tax justice’ through a UN tax body, says Ecuador’s foreign affairs minister
The creation of a new United Nations tax body to clamp down on tax dodging, which experts say could cost developing countries more than $200 billion a year in missed revenues, will be a key priority of the Group of 77 and China under Ecuadorian leadership, according to the country’s foreign minister.
Global tax regulation is currently decided by the Organisation for Economic Co-operation and Development, which is made up of 35 developed countries, leading many to question its legitimacy to decide on tax matters affecting all nations.
Speaking the day before Ecuador officially took over from Thailand as chair of the G77, Foreign Affairs Minister Guillaume Long said tackling tax havens would be a priority under Ecuador’s leadership and that it would seek to introduce a U.N. tax body with a state-level mandate to pursue “tax justice.”
“The tax haven issue will have a very prominent position in our presidency of the G77,” he said during a panel session organized by Jubilee USA Network in Washington, D.C., on Thursday.
The U.N. was previously suggested as a more appropriate and fair tax governing body. The idea was was raised during the 2015 G77 meeting on finance for development in Addis Ababa, but squashed by the U.S. and some European countries, who argued for continued OECD control.
Talking about the technical aspects of the proposed U.N. body, Long said it should be made up of member states and “not a body of experts,” since “it’s the states which have the real mandate to regulate this,” he said.
However, “political will,” more than technicalities, will be the key to creating “an institution which doesn’t only fight against tax havens but fights against the kinds of race to the bottom that you can have even between neighbors,” referring to the practice of country governments slashing corporate tax rates in order to compete for business. This has led to a declining global tax rate, which predominantly benefits corporations and their shareholders, and not government tax collectors, activists argue.
One example is tax avoidance, which is when wealthy individuals and multinational companies move their money into countries with low tax rates, also known as tax havens. Tax avoidance disproportionately affects developing countries, which the International Monetary Fund estimates are missing out on more than $200 billion a year as a result.
Oxfam estimates in Africa alone, governments are losing $14 billion in tax revenues every year due to wealth being hidden away in offshore accounts, and closing tax havens could generate up to $190 billion annually in taxes.
While previous attempts to open the global tax remit to a wider decision-making body met with resistance from OECD countries, Long said he is convinced this time will be different.
He sees “growing consensus” among OECD countries around the need to reform the tax system, driven by “security concerns” linked to fears about tax havens being used to fund terrorist activities. The Panama Papers leak in 2015 — which revealed details about hundreds of offshore companies, some of which were used for illegal purposes — was a key driver of this change in attitude. Long said leaders should use this to “create global consensus” despite the differing motivations of developing and developed countries.
Activists pushing for greater financial transparency and global tax reform signaled support for the Ecuadorian G77 mandate, arguing a U.N. tax body would offer developing countries a seat at the tax table.
“We’ve long been at the forefront of fighting for a more equitable body to decide tax and transparency standards globally, because it simply doesn’t make sense for 20 percent of the world to come up with rules for the other 80 percent,” said Porter McConnell, director of Financial Transparency Coalition.
However, other experts warned a U.N. tax body would be potentially expensive and unlikely to gain traction among OECD countries, notably the U.S.
“There clearly needs to be more inclusive discussion around international tax policy,” said Clark Gascoigne, deputy director of the FACT Coalition, but getting agreement on the establishment of a global tax body will be a “heavy lift” in America, considering many members of Congress are getting ready to “do battle” with the U.N. on other issues, he said.
Furthermore, proposals in Congress — such as moving the U.S. to a “territorial tax system,” one in which a company is only taxed on its domestic income and not its foreign income, and “border adjustment,” which would subsidize exports and increase tax on imports to stimulate domestic production — could actually “exacerbate problems of tax haven abuse and tax avoidance both in the U.S. and around the world,” Gascoigne warned.
Reframing the discussions away from a U.N. tax body and instead talking about an “international tax forum,” or upgrading of the already existing U.N. tax committee, could represent a more “palatable framing of the debate,” he said.
Requiring all multinational countries operating in G77 countries to report their profits on a country-by-country basis to the G77 could also be a more “strategic” way of getting the OECD to include the G77 in tax reform discussions, he suggested.
Furthermore, a U.N. tax body would take “enormous resources” to establish and could be susceptible to influence by tax haven countries, corrupt leaders and multinational companies, “none of whom want secrecy and tax havens to go away,” warned Elise Bean, former staff director and chief counsel to the U.S. Senate Permanent Subcommittee on Investigations.
Ecuador’s commitment to what Long refers to as “tax justice” is supported by the country’s own successful clampdown on tax avoidance; as a result of reforms, tax returns have jumped from $3.5 billion a year in 2006, to between $14 and $15 billion in 2015, he said.
The Ecuadorian government is also committed to closing tax haven loopholes and a referendum, to be held in February, will ask voters to decide whether politicians and civil servants should be allowed to keep money in offshore accounts.