Tuesday, August 12, 2008

UN pushes higher priority for tax cooperation

Highly promising signals are now emerging from the United Nations, which is preparing a summit meeting of world leaders in Doha in November-December this year to discuss progress on the financing for development agenda of the Monterrey Consensus. This agenda promotes new forms of international development cooperation, emphasising the importance of mobilising domestic resources (including tax revenues) for development. But helping poorer countries to develop effective and equitable tax regimes requires far greater effort to secure international cooperation in combating capital flight and tax evasion, both of which matters are at the core of TJN's agenda (See, for example, this past edition of Tax Justice Focus on the preparations for Doha, and TJN's 18 recommendations to the UN presented last September.)

So we are delighted to see the prominence given to tackling capital flight and tax evasion on the agenda for Doha. Take a look at the UN Secretary-General's report on financing for development to the UN General Assembly. Read paragraphs seven, eight and nine, in particular - each addressing issues we have pushed to have taken seriously. Paragraph seven looks at the importance of illicit capital flight and tax evasion, and the role of the Norwegian-led intergovernmental task force which is addressing the problem:

"A Working Group led by Norway on the development impact of illicit capital flows identified the need to expand cooperation in tax evasion in the same way the international community has coalesced on efforts against other criminal activities."

Ban Ki-moon also noted that at a high-level meeting in Madrid:

"the importance of an agreement to consider tax evasion as a corrupt practice among countries signatory to the UN Convention Against Corruption was also highlighted"

This is crucial: TJN has been pushing for some time for tax evasion to be considered an act of corruption under the UN Convention Against Corruption. We also understand that the IMF is now seriously considering treating tax evasion as a predicate crime for money-laundering purposes. This is long overdue, but good news nonetheless.

TJN has also pushed hard for the UN Tax Committee (more formally known as the "UN Committee of Experts on International Cooperation in Tax Matters") to be upgraded into a full intergovernmental body.. This is crucial: the only other forum for international discussion of tax matters is the OECD, a rich countries' club, which has adopted a timid approach to international information exchange. THe OECD's harmful tax competition initiative, launched ten years ago in 1998 at the behest of the G-7 group of industrialised countries, foundered after support was withdrawn by the administration of George W. Bush in 2001, and its focus on information exchange by request is too feeble to be effective. The same can be said of its transfer pricing rules, which are not working at all well. What is more, the OECD and the UN adopt different approaches to the issue of source-based and residence-based taxation (see here for more details) with the OECD model less favourable to poor countries than the UN approach. If the UN is to start pushing properly for appropriate tax practices in development, it must upgrade its Tax Committee as a first step. So we are encouraged to see paragraph 8 of the UN Secretary-General's new report:

"In discussing the importance of enhanced international cooperation on tax matters, some have referred to the work of the UN Committee of Experts on International Cooperation in Tax Matters and to a proposal to upgrade it to fully inter-governmental body."

We are not there yet, but upgrading the UN Tax Committee is on the agenda, and we are very pleased about that. Noureddine Bensouda, chair of the UN Tax Committee, recently said in a speech:

"During its last two sessions, the Committee, due to lack of sufficient funding and of a real input from developing countries in the way programs are constructed and international tax issues debated, could not go beyond focusing on the UN Model update, which constitutes only one mission among others.”

This is just what we have been saying. Bensouda added:

“Capital flight, lost tax revenues, tax competition, transfer pricing and the development of various forms of financial instruments are some of the issues of relevance to developing countries that the Committee may focus on in an intensive and practical training sessions in order to enable tax policy making authorities to learn about other countries experiences and thus provide capacity building assistance in order to develop and add to the level of domestic know-how.”

But that is not all. We have been working hard to promote the role of tax in building strong and accountable states (see here, for example) and Ki-Moon's report picks up on this interest:

"The conference with the theme “Revenue’s role in the quest for inclusive development: What works and what can work better? South-South sharing of successful tax practices,” held on 22 and 23 May 2008 at New York University and attended by senior officials from several developing countries, emphasized the need to enhance the perceived accountability of national and local governments by linking tax collection with service delivery."


Yet more good stuff from the UN. We would also like to highlight the South-South sharing of best tax practices event described in the paragraph above - for it is important. This, too, is an initiative that TJN has been promoting alongside our partner organisation New Rules for Global Finance - aiming to create networks for developing countries to come together and share experiences of what works and what does not. The meeting held in May in New York is to be followed by another in Amsterdam at the end of August, at which TJN's David Spencer and TJNederlands' Albert Hollander will be participating. And the UN is also planning to hold a high-level round-table meeting on this at the Doha review conference, with both New Rules and TJN participating.

We are greatly encouraged by all of this. But there is still more. A Draft Outcomes Report for the Doha process is being circulated for comment. This is just a preliminary draft, and there will be much jostling, and of course strong lobbying by malign and powerful tax haven interests and others - before the final outcome report is approved. We are particularly pleased with paragraphs 10 and 11 of this report, and we would like to stress the importance of the following sentence in paragraph 10:

"We will consider strengthening the United Nations Committee of Experts on International Cooperation on Tax Matters by upgrading it to an intergovernmental body."

This is urgent. The current Committee lacks resources and its membership is too narrowly based. More secrecy jurisdictions participate at its annual session in Geneva than developing countries. Secrecy jurisdictions love the status quo, which mitigates against making progress on even the most limited of agendas. It is crucial that international civil society groups and all those concerned with world poverty and corruption add their support to the proposal to strengthen the Committee. But we are very heartened that the proposal has made it into the draft report.

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