UNCTAD: the time for tax justice has come

Image from the UNCTAD report

A press release about the latest UNCTAD Trade and Development report 2014:

“Governments, from rich and poor countries alike, should be able to finance the investment and other public spending required to meet the demands of their citizens for a more prosperous and secure life. Mobilizing domestic fiscal revenue is key, as in the long run it is more reliable than aid and more sustainable than debt, and less subject than either to conditions that restrict policy space.”

Just what we’ve been saying for a very long time. In fact, the whole press release is, essentially, a document of tax justice, and it contains plenty of references to our work (such as on our Financial Secrecy Index, on p172). The press release continues in this vein:

“A large proportion of illicit financial flows – which make use of all kinds of mechanisms for circumventing judicial and regulatory oversight – goes through offshore financial centres, based in “secrecy jurisdictions”. Approximately 8–15 per cent of the net financial wealth of households is held in tax havens, mostly unrecorded. The resulting loss of public revenue amounts to $190?$290 billion per year, of which $66?$84 billion is lost from developing countries, equivalent to two thirds of annual official development assistance. As for corporates, their main vehicle for tax avoidance or evasion and capital flight from developing countries is the misuse of “transfer pricing” (i.e. when international firms price the goods and services provided to different parts of their business to create profit–loss profiles that minimize tax payments). By this means, developing countries may be losing over $160 billion annually, well in excess of the combined aid budgets of developed countries.

The international tax architecture has failed so far to properly adapt to this reality. The Trade and Development Report, 2014 argues that offshore financial centres and the secrecy jurisdictions that host them are fully integrated into the global financial system, and large shares of trade and capital movements (including foreign direct investment) are channelled through them. Using those jurisdictions is now part of “normal” business practice in most large firms and banks. Moreover, the most important providers of financial secrecy are some of the world’s biggest and wealthiest countries or specific areas within those countries. Thus, changing this system requires not only knowledge of the technicalities involved, but also firm political leadership.”

And there’s plenty more. A decade ago, we were one among a small handful of lone voices in the wilderness. Now, steadily, more and more influential actors are fully engaging in tax justice. More specifically, for example:

“While [various international] initiatives are steps in the right direction, their implementation and enforcement have generally been very slow. This is particularly so with regard to transfer pricing abuses, which are extremely harmful for developing countries. Because these initiatives are mostly led by the developed economies – the main homes to TNCs and to some secrecy jurisdictions – there are risks that the debate will not fully take into account the needs and views of developing and transition economies. It will therefore be important to give a more prominent role to institutions like the United Nations Committee of Experts on International Cooperation in Tax Matters [TJN: just as we’ve long argued], and to consider the adoption of an international convention against tax avoidance and evasion.”

The full UNCTAD report is here. Their reports are always interesting and crammed with facts; the section on pp171-179 will be of most direct interest to people interested in tax justice.