Alex Cobham ■ A UN Tax Convention – then a U-turn

A jeep u-turns in the snow

Last night, the United Nations published a document with a ground-breaking tax justice recommendation for the global meeting of ministers of finance which takes place this Tuesday 8 September. But just a few hours later, the document was replaced with another, claiming to be the ‘advance unformatted version’. This document was identical in most respects, except for a lack of formatting – and the elimination of the recommendation in question.

While the opposition remains strong – and we had been told to expect fierce pushback on this specific text – the episode confirms the direction of travel in international tax. Faith in the OECD’s ability to reflect the concerns of non-members has hit rock bottom, for sound reasons, and new UN instruments are increasingly likely to follow. This post explains the context, then details the U-turn, before drawing out some implications – for the ministers of finance meeting, for the UN FACTI panel, and for the OECD.

Tax justice gaining ground in the pandemic

The context for this U-turn is the steady advance of tax justice concerns globally, as the pandemic lays bare the critical importance of well-funded public services, and the brutal cost of unmitigated structural inequalities.

Throughout the last few months, two UN processes have been running somewhat in parallel. Predating the pandemic, the UN FACTI Panel (the High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda, convened by Nigeria and Norway) has been running since January and is working on an assessment of the gaps in the global financial architecture. Later this month, its interim report will set out a range of proposals, to be discussed before the final report in January 2021.

As we explored earlier, the FACTI panel’s background papers identify some critical issues, and propose a number of tax justice policy responses. However, the panel is facing sustained pressure from various high-income countries not to recommend UN action, and instead to continue to rely on the OECD and related mechanisms – despite the systematic findings of more intense tax losses for lower-income countries.

The more recent, and immediate process is the Initiative on Financing for Development in the Era of COVID-19 and Beyond. The initiative, convened by Canada and Jamaica, has run over the last few months with six discussion groups (full disclosure: I’ve been honoured to be an invited expert for the process, including for the group addressing illicit financial flows).

In the FfD COVID initiative, as in the FACTI panel, the dynamic has been a clear one: non-OECD countries tending to highlight the structural flaws that result in their disproportionate losses, and being inclined towards UN solutions; while OECD countries favour retaining decision-making power at the OECD.

This is not a new division, of course. But what is new is the depth of engagement on the issues, and the commitment of non-OECD countries to insist on meaningful progress. At the same time, there may perhaps be less unity among OECD members, a number of which have been among the countries to suffer most heavily from the pandemic, and see the politics shift most strongly around funding public services and addressing inequalities.

The pivotal proposal in this context of shifting division has been that of a UN tax convention.

UN Tax Convention

The idea for a UN Tax Convention has been advanced by the tax justice movement, notably the Tax Justice Network and our sister organisation the Global Alliance for Tax Justice. Over the last few years in particular, the idea has gained ground as a mechanism to ensure progress on including all countries in the full benefits of our ‘ABC’ of tax transparency (Automatic exchange of financial account information; public registers of Beneficial ownership for companies, trusts and foundations; and public, Country-by-country reporting from multinational companies); and creating a globally inclusive and representative forum to discuss and eventually to set future international tax rules and norms.

As the Civil Society FfD Group (including Women’s Working Group on FfD) put it in their input to the process, priorities must include:

UN Tax Convention to comprehensively address tax havens, tax abuse by multinational corporations and other illicit financial flows through a truly universal, intergovernmental process at the UN. Unless the failures of the international tax system are urgently addressed, countries around the world will continue to lose billions of dollars due to illicit financial flows. This will increase the already unsustainable debt levels and undermine governments’ abilities to respond to the crisis;

It is time to back a truly universal, intergovernmental process at the UN to comprehensively address tax havens, tax abuse by multinational corporations and other illicit financial flows that obstruct redistribution and drain resources that are crucial to challenging inequalities, particularly gender inequality.

Taxing income, wealth and trade should be seen to support the internationally agreed human rights frameworks, as without taxation we cannot mobilise the maximum available revenues. Tax abuse and tax avoidance also needs to be considered under the extraterritorial obligations of states towards other states not to hamper the enjoyment of human rights via blocking financing through abusive tax laws, rules and allowing companies and wealthy individuals to abuse tax systems.

That U-turn in full…

Back to the issue at hand: last night, the key documents from the whole process were published. These were parts 1 and 2 of the ‘Menu of Options for the Consideration of Ministers of Finance’ – in other words, the officially approved summary of all the work from each of the six discussion groups, the country positions and expert inputs, signed off as recommendations for the world’s ministers of finance to consider when they meet in just four days’ time.

The central aim throughout the process had been to boil down the many suggestions received from countries, UN bodies and civil society – hundreds, overall – to a small enough number that ministers of finance could reasonably make an evaluation, and draw some conclusions for the national challenges each faces. In many cases, suggestions were excluded, or at best merely noted. But in some few cases, there were explicit recommendations.

And so there was much rejoicing among those of a tax justice view when last night’s report included, in the executive summary no less, the following emphatic position:

A UN tax convention is also recommended, inter alia to mobilize the maximum available revenues, address tax abuse and avoidance and ensure the necessary fiscal and policy space for an effective recovery.

UN, 2020, Financing for Development in the Era of COVID-19 and Beyond: Menu of Options for the Consideration of Ministers of Finance, Part I (p.7).

And that rejoicing was followed today by much gnashing of teeth as the document was replaced by another, apparently identical – except for bar the total removal of the quoted recommendation. Here’s the single result of a pdf comparison tool.

Thanks to Riley Zecca for running the comparison. Screenshot: DiffChecker.

Here’s the comparison of text – not often you see an organisation deliberately replace a nicely formatted version (here, on the right), with the basic unformatted one. And all to cover a U-turn…

Some implications

It’s tempting simply to be depressed by this episode, confirming as it does the view that behind closed doors, internal UN processes can be all too easily bent to the will of a few powerful OECD member states. Some would argue this is a reason not to seek a UN forum for international tax issues if the same countries will dominate as they do at the UN.

But there’s already a difference: here, we know which countries opposed this measure, because unlike most OECD negotiations, formal UN processes are public. And here, the results were published – even if only briefly. So even this bad example of UN performance confirms its relative appeal, if what we hope for is a broadly transparent process, with some degree of accountability. (The underlying problem of power imbalances between imperial, post-imperial powers and others cannot be solved by choice of forum – but the costs of those inequalities can be mitigated to a degree.)

For Tuesday’s ministers of finance meeting, this episode sends a clear signal – the opposition will not tolerate the beginning of negotiations over a UN tax convention. And yet such a blatant display of that blocking power may have the opposite result. The G77 group of countries had drafted a resolution last year to start negotiations, but ultimately withdrew it to save consensus on other points. This meeting now offers a straightforward opportunity to raise it again, in the knowledge that there has been broad backing within the process already. I’ll be sure to mention it, at least, in the unlikely event I’m called on to speak… And media interest may just have been piqued by the UN’s strange reversal.

For the UN FACTI panel, the position could not be clearer. All of the discussions and background research confirms the need for a UN tax convention, alongside other major reforms. The interim report due out later this month should identify the gap, and in doing so lay the ground for discussions with UN member states that could form the basis for a specific recommendation for the possible content of a UN tax convention, when the final report comes out early next year.

Lastly, we might ask where this leaves the OECD. On the one hand, the tide is clearly turning against having the “rich countries’ club” set the terms for international tax and transparency. The systematic exclusion of lower-income countries, and the failure to address tax havenry of OECD members and their dependent territories, have built to a significant loss of confidence. The pressure for effective action due to the pandemic merely accentuates the disappointment.

And yet the OECD is also being given a clear direction. Pressure is growing for countries to introduce wealth taxes – but too many countries have no access to the data, generated under the OECD Common Reporting Standard, on their tax residents’ financial accounts offshore. The OECD could lead a transparency initiative here, with – for once – disproportionate benefits for non-members.

Pressure is growing, too, for international corporate tax to reflect the location of companies’ real economic activity – sales and employment – rather than their contrived profit shifting. While the OECD has had to quash the G24 countries’ proposal in spite of the Inclusive Framework’s support, in order to accommodate a US-France deal, the OECD could still reclaim some face by moving quickly to set its standard for companies’ country by country reporting to be public data.

Given that the most intense losses from corporate tax abuse, like those from offshore evasion, fall on lower-income non-OECD members, this too would disproportionately benefit the latter.

The OECD could remain set on keeping its members happy, but in the longer term this can only succeed if the OECD retains the right to set rules for all – and that is now, rightly, in serious question. A failure to respond will see growing unilateral and UN action, so that even OECD members will come to focus their attention elsewhere.

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