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The need for a UN tax body is more evident than ever

Added 15 Apr 2016
Once again, the global headlines are dominated by tax scandals. Thanks to the Panama Papers, tax dodging has never been higher on the public agenda, and the question of why the problem of tax dodging remains unsolved is being asked all over the world. 

At the core of this problem is the fact that our governments still have no real global cooperation on tax issues, despite the fact that this is very clearly a global problem which calls for a global solution. Instead, so-called “global” standards are being adopted in exclusive forums where some countries are welcome and others are not.

It was exactly this question that was the core of the fight when the world’s governments met last July at a very dramatic summit on Financing for Development in Addis Ababa. The developing countries called for the establishment of an intergovernmental tax body under the UN, which would be able to tackle international tax dodging and allow all countries to negotiate on an equal footing. But this proposal was blocked by developed countries – led by the US, France and the UK, who instead wanted the decision making to take place at the OECD and G20, where more than 100 developing countries are excluded from the decision making. The summit closed with much frustration in the air, as the question was left unresolved. After the summit, the OECD and G20 went ahead with their closed door meetings and adopted almost 2000 pages of new decisions on the global tax standards, which all countries of the world are now being asked to comply with.

But the story doesn’t end here. Next week (18-20 April) the inaugural ECOSOC Forum on Financing for Development (FfD) will be held at the United Nations Headquarters in New York under the theme “Financing for sustainable development: follow-up to the Addis Ababa Action Agenda”. Ahead of the summit, the discussion about the need for a UN tax body has surfaced again, both in the media as well as in the regional discussions among governments. The UN Economic Commission for Latin America and the Caribbean (ECLAC) has released a report, jointly produced with Eurodad partner Intermón Oxfam and titled “Time to tax for an inclusive growth”. The report states that “the current global tax reform agenda will not instigate transformative solutions to ensure that multinationals can be taxed where they conduct economic activities and create value (…) international tax cooperation within an intergovernmental UN body is key to strengthening the domestic collection of corporate income tax, especially from the multinational enterprises”. Therefore, one of the follow-up recommendations in the same report is “[to] support the establishment of a United Nations intergovernmental tax body, with inclusive norm-setting capacity and universal relevance and participation. A new generation of global tax reforms will never be achieved until those who are involved can be part of the decision”. 

Tax evasion and avoidance is one of the most important factors contributing to inequality globally. In Latin America and the Caribbean region this problem of inequality is acute, being the most unequal region in the world. As an example of this trend, in 2014 the richest 10% of people in the region had amassed 71% of the region’s wealth and from 2002 to 2015 the wealth of the region’s billionaires grew by an average of 21% per year. According to ECLAC calculations, evasion and avoidance of personal and corporate income tax cost the region more than $190 billion in 2014. 

One of the solutions to the huge amount of tax avoidance / evasion in the region that Alicia Bárcena, ECLAC’s Executive Secretary, pointed out during the XXVIII Regional Workshop on Fiscal Policies last March, is stopping transfer pricing manipulation in order to protect tax bases at the source where value is created and real productive activities take place. However, at the end of her presentation Bárcena highlighted that the main global solution to tackle this dynamic would be the creation of a UN intergovernmental tax body.

The need for genuine reform of global tax rules has again been highlighted by the Panama Papers which have allowed the public a small peek into the murky world of financial secrecy and tax dodging. The campaign for a Global Tax Body will continue until the world’s governments start showing real will to cooperate and solve the problems of tax havens and tax dodging. As the campaign’s mascot said on the last day of the Addis Ababa negotiations: “See you in New York!”