2009 – The Latin America edition

Tax Justice Focus – THE LATIN AMERICA EDITION

From Matti Kohonen, guest editor

September 6th, 2009

The Latin America Edition – click here

This is a special edition of Tax Justice Focus, with Latin America as its main theme.

Across Latin America the landscape of tax varies dramatically from country to country, as do the responses to the global financial and economic crisis. In the lead article Juan Pablo Jiménez and Juan Carlos Gómez Sabaini examine the difficulties in implementing tax reforms in a continent marked by high inequality, delegitimised political institutions at the mercy of powerful vested interests, and a legacy of regressive and weak tax systems.

In our editorial on page three, Matti Kohonen describes TJN’s first steps in building a new Latin American network, and points to how important it is to embed this work in a global context. This is complemented by Frederico Arenoso’s article on page 16, describing the challenges we face as we build up the TJN Latin American Secretariat. On the following page,Birger Nerre reports from the second EU-Latin American & Caribbean (EU-LAC) forum in Montevideo in May, which called for strengthening tax systems across the continent. It is followed on page

Latin American states also suffer from weakness of controls against capital flight. As Jorge Gaggero demonstrates on page 5, accumulated capital flight in Argentina gas markedly and consistently followed rising levels of external debt stocks.

On page 7, Nicholas Shaxson demolishes the seductive but superficial argument, which gains wide currency, contending that offshore secrecy can protect wealthy people in Latin America from the threat of kidnap.

In Brazil tax avoidance, tax competition and compliance costs can pose special problems for a federal country with a three-tier tax system.  On page 9 Luis Flávio Neto outlines how these problems have triggered a “Guerra Fiscal,” or Tax War, with unhealthy consequences.

Guatemala and Nicaragua are also caught in a cycle of tax competition where, as Maynor Cabnera explains on page 11, tax incentives and tax exemptions on Maquila-factories should be considered in relation to “tax expenditure” calculations, to reflect the true losses of such provisions.

This is followed by Matti Kohonen’s feature article on page 13, describing the astonishing research by Washington-based Global Financial Integrity looking at the scale of cross-border illicit flows around the world.

Knowing where a company is based is a prerequisite for any information exchange to be meaningful. As Richard Murphy points out onpage 15, describing TJN’s ongoing “Where on Earth” project, even discovering where multinational corporations base their subsidiary operations is a painstaking task – and finding out what they are doing with those subsidiary operations is nearly impossible given the secrecy world in which they operate.

Resisting powerful lobbyists requires better representation, while drawing up new policies requires research and informed policy debate.  Both issues are considered by Maaike Kokke, in her article page 18 describing the EU-funded “Towards Tax Justice” programme led by SOMO in the Netherlands.

The edition is rounded off with two book reviews by Markus Meinzer and Francis Weyzig on pages 19 and 20 respectively. Meinzer looks at Thomas Rixen’s important new book The Political Economy of International Tax Governance, while Weyzig examines Taxes and the Economy, a broad survey of international taxation by the Dutch authors Willem Vermeend, Rick van de Ploeg, and Jan Willem Timmer.