The UN is failing on international tax - so the OECD calls the shots
Dries Lesage of Ghent University, who was part of TJN's delegation to the UN Tax Committee in Geneva in late 2007, has recently published a new report about the role of the UN in international tax and the financing for development (FfD) process around Doha. His report argues that international tax cooperation (outside a restricted OECD context) has had a perniciously low profile, and that the Doha event
"is a rare occasion of international political momentum, not to say the only occasion in the foreseeable future, to make substantive progress with regard to this agenda at the multilateral level."
And it seems that the United Nations is simply not taking the matter of international taxation seriously enough. Essentially, it has relegated these matters to an arcane committee which has neither the competence, nor the will, nor the mandate, nor the ability, to address the issues seriously.
As with several of TJN's areas of interest, this may seem like an arcane matter, but in fact its importance is potentially quite colossal: potentially of far more importance to developing countries than the $100 billion-odd in annual foreign aid.
Lesage's new report makes some crucial points. First, the tax dimension of the FfD process deserves far more attention than it has been given until now - especially with respect to globalisation-related issues such as taxing multinational companies, fraudulent capital flight to offshore finance centres, the developing world's very weak capacity to tackle such issues, and the importance of international co-operation.
Essentially, there are two models are prevalent in international taxation, which concern how rights are allocated between countries to tax multinationals and individuals. The relative weights of these rights have very large implications for the finances of developing countries. One set of guidelines, put forwards by the OECD (the club of rich countries), unsurpsisingly favours the rich countries; the other set, the United Nations model, is generally favourable towards developing nations. (The implications of these differences are potentially huge: for more information on this, notably the issue of source-based and residence-based taxation, click here.) Given that the UN has been so weak on articulating its proposals and taking up developing nations' concerns, the OECD has been able, effectively, to call the shots on international taxation.
The forum where these issues are discussed is the UN Tax committee (formally known as the otherwise known as the Committee of Experts on International Co-operation on Tax Matters.) And the UN Tax Committee is, in short, failing in its responsibilities to the developing world - not just with respect to international tax models, but more broadly. As Lesage observes:
"Although the current mandate of the Committee is broad enough to discuss all relevant global tax issues, most of its work has so far been dedicated to updating the UN Model. This way, the UN Tax Committee does not really function as the centre of global taxation governance."
It is essential that the UN Tax committee is strengthened, both in terms of its mandate and in terms of the interests and capabilities of its members. As pointed out in an earlier report (on p8-9 of this edition of the TJN newsletter, Tax Justice Focus), one of the problem is that while the Committee allocates posts to "developing countries," many of these developing countries (as well as some of the richer nations) are tax havens. This subverts the entire process, from the start. But that is not all.
The technical experts who compose the current UN Tax committee are generally the same as those drawn from an earlier ad hoc committee – and their expertise tends to be in drawing up bilateral agreements, not in the broader issues. They appear to be unwilling to address seriously the much wider and more important political issues of capital flight, tax competition, and so on, and TJN gets the impression as a result of attending their meetings and talking to their members that they are almost oblivious to the fact that they were made a committee in the context of Financing for Development! It is astonishing to listen to their deliberations, which quickly get bogged down on highly obscure definitional points and technical wordings, while the weighty political matters are hardly addressed. As Lesage politely observes:
"the UN record on taxation is rather limited thus far."
Lesage makes some important recommendations, including the following:
- there should be a minimum consensus on upgrading and reorganising the UN Tax Committee and strengthening the FfD Office, so that global tax issues get at least an institutional home. Of course not all issues can be dealt with in Doha in detail, but they should at least give the UN Tax Committee the means to become a motor for ongoing discussion, study and multilateral policy.
- A UN Code of conduct on international taxation must be pushed forwards (see the first article in this edition of Tax Justice Focus).
- More weight needs to be given to tax matters in several chapters of the Financing for Development project. Development-relevant and globalisation-related tax issues were not addressed in the final report of the Monterrey Consensus (the pre-cursor to Doha) - which was a step backwards following powerful lobbying which eliminated the tax dimension. These issues must now be addressed in a more profound way, and Doha is the prime opportunity to do this.
- Better multilateral assistance can be given to national tax administrations on matters of international taxation.