The extreme wealth of the superrich is making our economies insecure and poorer than the sum of their parts.
Our economies were designed to let people earn the wealth they need to lead secure and comfortable lives, but our tax rules make it easier for the superrich to collect wealth than for the rest of us to earn it. This has let the superrich collect extreme wealth to the point where our economies are less productive, more households are having to go into debt and people are living shorter lives.
Wealth taxes are the best tool for putting an end to the two-tier tax treatment that puts people who collect wealth for a living (ie those who mainly live off of huge dividends and rent money they collect) above those who earn wealth for a living (ie those who mainly live off of income they earn from working). We need wealth taxes to make our economies secure and protect the earner way of life that has defined the modern era.
Countries can straightforwardly follow the example of Spain’s successful and modest wealth tax today to raise $2 trillion in tax from the world’s richest 0.5%.
Here’s our step-by-step guide on how to tax the superrich.
Steps
1. Set a high bar for wealth and only tax wealth that’s above the bar
Setting a high threshold – like the top 0.5% wealth – means any wealth a person owns below this threshold does not get taxed. This makes sure the wealth tax only applies to the superrich, and doesn’t negatively impacts the middle and lower classes. It also means the very wealthy individuals to whom the tax does apply would only pay tax on the upper crust of their wealth – that is, on the portion of their wealth above the 0.5% threshold. For example, in Switzerland, a 0.5% threshold stands at US$11 million. A wealth Swiss person would only be taxed on the wealth they own above US$11 million. Their first eleven millions would not be taxed. A high threshold makes the administration of wealth tax simple for governments and more politically feasible.
2. Apply the tax to all types of wealth to prevent the superrich from cheating on tax
Exempting certain types of wealth from the tax creates an opportunity for the superrich to abuse. They can shift their assets into exempted categories to pay less tax. This shifting isn’t only bad economics — since wealth goes to where tax dues are lowest rather than where they’re most productive — it also complicates implementation, making a lot more costly work for tax authorities. By applying the wealth tax to all asset classes above the high threshold, governments can prevent inefficient investments and curb the wiggle room for tax abuse. If you’re a government and you’re concerned about the potential impact of applying the tax to business assets, don’t worry, we’ll explain how to handle this in step 6 below.
3. Exercise robust transparency on owners of companies and assets, to tax the right amount
When governments apply income tax, they don’t rely alone on what people self-report. They use official records to verify how much a person earned and ought to be taxed. Otherwise, folks can underreport to underpay tax. Wealth taxes are no different. But the problem is the owners of companies and assets can cover the paper trails linking them to what they own. The best tool for exposing these paper trails are public registers on beneficial (ie true) owners. These registers provide detailed information on who truly owns and controls companies and assets, equipping governments with the official records they need to verify how much wealth a person has and how much tax they should pay.
4. Strengthen transparency standards at the UN so that the superrich rich can’t hide wealth in tax havens
The strength of countries’ tax laws ultimately depends on our global tax transparency standards. The superrich’s ability to use secrecy jurisdictions — a type of tax haven that specialises in hiding finances from other countries’ laws — to hide their wealth from tax administrations can keep wealth taxes from being fully effective. To make wealth taxes truly effective, countries must make sure the UN tax convention currently being negotiated delivers robust tax transparency standards.
5. Put in safety measures to make sure superrich individuals relocating to other countries still pay what they owe
Evidence shows that apply wealth tax to the superrich does not lead to the superrich fleeing the country in droves, despite media headlines claiming the contrary. Just 0.01% of the richest households relocated after wealth tax reforms targeting them were implemented in Norway, Sweden and Denmark. But just to be safe, governments can put in place measures to make sure a long-time resident superrich individual still pays the wealth tax they owe even if they move abroad. For example, governments can introduce a tax obligation on former residents for a specified period after they move abroad, or implement exit taxes on individuals who renounce their residency. It’s worth noting that if other countries also introduce wealth taxes, there’d be little point to relocate to somewhere else.
6. Provide business owners some flexibility so they don’t have to liquidate their business to pay their taxes
Concerns that business owners might need to sell parts of their companies to pay their wealth taxes can be addressed by providing alternative options for paying. For example, business owners who are unable to pay their tax dues in cash by the end of the year and cannot easily generate liquidity from their businesses — unlike publicly traded companies that can sell shares — could transfer some a fraction of their business’s shares, equivalent to the tax duty, to a government-managed “wealth tax trust”. This approach has been successfully used for taxing inherited artwork. The government would own that part of the business, with rights to receive their share of profits but without any control over how the business is run. And the business owner would have the option to buy back these shares within a specified period at the same price. If the owner decides not to buy them back, the trust would sell the shares to the market after a set period. This approach protects businesses from being squeezed by the wealth tax while making sure their owners pay the tax they owe.
7. Call out all myths used to scare the public off of wealth taxes
There are a lot of common misconceptions about wealth taxes: they drive the superrich away, they unfairly target the middle class, they harm the economy. None of these are true: the superrich stay where they are, wealth taxes only apply to the very richest, they boost economic productivity and investment. What rarely gets talked about is the two-tier tax treatment of wealth. Collected wealth – ie dividends, capital gains and rent gained from owning things – is typically taxed at far lower rates than earned wealth – ie salaries gained by working. At the same time, collected wealth typically grows faster than earned wealth. This has resulted in the wealth of the superrich – whose wealth is virtually all collected rather than earned – quadrupling since the 1980s. Wealth taxes put an end to this two-tier treatment, making our economies more secure and protecting the earner way of life our economies are based on. Governments should call out myths on wealth taxes with clear and factual information on how they would implement wealth tax reforms, who these would apply affect and the benefits to be gained.
The second and final round of negotiations of the Terms of Reference for a UN Tax Convention has started in New York City (see our recap blog on what happened in the first round). It is in the best interest of any person, no matter where they live in the world, that UN Member States negotiate in good faith in this process. At stake is that countries make the most of this once-in-a-century opportunity to come up with robust guiding parameters that pave the way for an international instrument that develops the duty to cooperate internationally on tax matters and puts an end to global tax abuse – which is on course to cost countries nearly US$5 trillion in the next 10 years if global tax rules aren’t fixed. Tax is our social superpower, and our governments are desperately in need of these essential resources to fulfil people’s rights and tackle the most pressing global problems, including the climate emergency.
Unsurprisingly, members of the rich countries club the OECD are continuing to throw obstacles at the UN tax talks. The OECD, whose members includes some of the most harmful tax havens, has served as the world’s de facto rule-maker on global tax for over sixty years and its opaque and non-inclusive processes have been widely criticised and blamed for our currently broken global tax rules, which lose just about half a trillion dollars to tax havens every year. That’s why a landslide majority of countries voted at the UN last year in favour of moving decision-making for the OECD to the UN. But OECD members are still trying to keep decision-making on global tax rules, even though top UN human rights experts have said the OECD’s plans for new global tax rules are incompatible with anti-racism and anti-sexism laws, will make even harder for lower and middle income countries from losing taxes to tax havens, and “could have a discriminatory impact on the grounds of gender, ethnicity and race.”
In anticipation of the negotiations, we’ve compiled a guide to the five main fallacies that rich OECD countries will likely use to try to derail progress in the talks. In order not to lose the privilege of setting the agenda on international taxation issues, these countries are making a short-sighted interpretation of their own national interests, and they are opposing an ambitious international instrument (see full our database on who wants what from the UN tax negotiations). We provide insights on how to respond to each of these fallacies with a view to avoid distractions from the aim of achieving the best possible outcome to secure a fully inclusive and truly effective international tax cooperation framework that benefits all countries.
Ultimately, a broken, opaque and non-inclusive global tax system is bad for everyone, despite OECD countries’ attempts to keep it so. OECD countries are responsible for facilitating over three-fourths of the tax losses countries suffer every year to global tax abuse. At the same time, they are also the world’s biggest losers to tax abuse. This is a lose-lose game that results in the world handing over nearly half a trillion dollars of public money to the wealthiest multinational corporations and superrich individuals. Moving global tax policy from the OECD to the UN, where transparency, democratic process and human rights obligations prevail, is our best shot for fixing our global tax system. All countries will benefit from UN leadership on global tax policy, including the OECD countries who are putting power before prosperity.
1. The fallacy of duplication
A first objection that will recur against an ambitious UN framework convention on tax is that this instrument should not duplicate work that has been done in other fora. This objection, however, ignores the fact that this is – literally – the very first time that a legally binding instrument governing international tax cooperation is being negotiated in a universal and inclusive forum.
While there are international and multilateral agreements on tax matters, the UN Secretary-General’s 2023 report requested by the General Assembly notes that “they do not satisfy the main elements for fully inclusive and more effective international tax cooperation”. This does not mean that the progress that may have been made through these instruments should be dismissed, but they would have to be brought into line with the objectives, principles and commitments defined by the framework.
The Secretary-General’s report argued that rather than duplicating existing processes, a UN intergovernmental process would leverage existing strengths and address gaps and weaknesses in current international tax cooperation efforts. Indeed, unlike technical guidance or assistance work that institutions such as the International Monetary Fund or the World Bank might develop, the UN undertakes collective norm-shaping through an intergovernmental process that can take into consideration the needs of countries at different levels of development. This is why the report considered that “enhancing the role of the United Nations in tax-norm shaping and rule-setting appears the most viable path for making international tax cooperation fully inclusive and more effective”.
The fallacy of duplication takes different forms in State Members’ submissions. For example, several countries argue that paragraph 20 of the negotiating draft text, which states that “throughout its work, the intergovernmental negotiating committee should take into consideration the work of other relevant forums, potential synergies and the existing tools, strengths, expertise and complementarities available in the multiple institutions involved in tax cooperation at the international, regional and local levels”, should be elevated to a principle. Moving this paragraph from the section on negotiating approaches up to become a principle would significantly undermine the flexibility of the negotiating committee necessary for negotiators to assess which elements of existing instruments should be included in the framework and which should not (according to their coherence with other elements of the framework) on a case-by-case analysis. In other words, it would limit the UN framework convention’s ability to fill the existing gap in the international cooperation on tax which this whole process aims to address, and which costs all countries dearly in tax losses every year.
The same group of countries arguing in favour of making paragraph 20 a principle often also argued that the commitments to be included in paragraph 10 of the terms of reference should exclude any issues that are being or have been addressed by other fora, and particularly by the OECD. In a similar vein, the UK, for example, proposes to include principles of subsidiarity or comparative advantage in the terms of reference so that the framework convention only includes issues that are not being addressed by other instruments. All of this would counterproductively restrict the scope of the framework convention, as it would prevent the UN from applying the universally adopted objectives and principles of the framework convention to key areas where current standards are not satisfactory ― for instance, corporate taxation standards covered by the OECD’s faltering two pillar agreement, which UN human rights experts say are incompatible with anti-racism and anti-sexism laws.
The point of the framework convention is to allow all countries to be included in setting international tax rules. It would be ridiculous to argue that the framework convention should not apply to areas where some countries only have already had a chance to participate in rule-setting.
2. The fallacy of fragmentation and uncertainty
A recurring and related objection is that including issues dealt with in other fora in the framework convention would create the risk of fragmentation of global tax rules and consequent legal ambiguity. According to this position, expressed by the UK in its submission, international tax cooperation could be weakened over the coming years because of fragmentation, which would increase the prospect of regulatory arbitrage and illicit financial flows. In addition, inconsistent rules could lead to double taxation, which would discourage foreign investment.
This reality-denying objection ignores the current proliferation of double taxation treaties and rules adopted in fora without universal acceptance is already resulting in exactly the type of fragmentation and ambiguity the UK is warning about – and that the UK’s financial centre notoriously exploits to undermine other countries’ tax revenues. And it ignores the fact that a UN framework convention is precisely the best instrument for putting an end to this fragmentation and ambiguity.
Contrary to what countries such as the Netherlands claim in their submissions, there is no functional, cohesive and predictable system of global tax governance today. On the contrary, the framework convention is how we can finally create cohesion. The risk of competing standards could be addressed if, as suggested by the Africa Group in the first round of submissions, provisions were made around a transitional regime. In the first round of negotiations, Brazil also raised the need to reconsider bilateral treaties through an expedited review procedure considering the adopted framework.
3. The fallacy of consensus-only outcomes in a world desperately in need of prompt solutions
One of the demands most insisted upon by the EU and other rich OECD countries is that at this stage of the terms of reference, discussion should mainly focus on procedural aspects, and in particular those that have to do with decision-making rules. These countries argue that in international taxation matters, by virtue of the principle of sovereignty, the rule of consensus should prevail. Consensus would be the way to ensure broad acceptance and commitment to the implementation of the framework convention.
A consensus rule in practice can mean that a single country has veto power over a reasonable agreement that all other countries are in favour of – which in international taxation matters may make agreements virtually impossible. Contrary to what is usually claimed, the OECD’s “Inclusive” Framework has not adopted many of its decisions by consensus. Not only does the “Inclusive” Framework fall far short of having universal membership, its decision have been made in direction opposition to strong, public objections by its members see the Litany of Failures report we co-published with partners for more information on this.
The UN General Assembly’s rules of procedure strive for consensus, but wisely recognise that to advance the solutions the world urgently demands, other decision-making mechanisms may be necessary when consensus is not possible. The field of international taxation should be no exception to this, and the rules of the subsidiary bodies of the General Assembly ― which do not outlaw the simple majority rule as a valid decision-making mechanism when needed ― are well established.
The group of countries supporting consensus as a decision-making mechanism has found some precedents in UN resolutions that have established decision-making rules different from the usual procedures of UN subsidiary bodies. However, in a context where multilateralism is being questioned for its inability to respond in a timely manner to pressing problems such as the climate emergency or the fulfilment of the Sustainable Development Goals it is worth asking if special rules should be introduced in this case. Establishing a veto power by introducing consensus as the sole decision-making mechanisms on international tax cooperation – which is a critical area for mobilising resources for these and other agendas – may reinforce the perception that multilateral solutions required very demanding requirements that impede them to move forward with any meaningful agreements. The current UN tax convention process is a golden opportunity to restore confidence that multilateralism can deliver timely solutions – and preserving the possibility of using alternative decision-making rules when consensus is not possible seems essential to put healthy pressure on Member States to seek agreements in good faith.
4. The fallacy of focusing on the less controversial topics
Another recurring objection to addressing the issues on which rich OECD countries have so far had the power to set the agenda is that the framework convention should focus on less controversial issues.
If multilateralism were to focus on less controversial issues, it would probably not respond to the world’s most pressing problems. What the world expects from this process is not to make easy progress at the margins (‘low-hanging fruit’ victories), but to deliver structural solutions to the major problems that result from failures in international tax cooperation (eg curbing tax-related illicit financial flows and harmful tax abuse) – regardless of, or indeed precisely because of how controversial and challenging these problems may be.
The point of a UN framework convention is to move beyond the OECD’s failed reign over global tax rules and in particular its dead-in-the-water 10-year long reform attempt at stopping the half a trillion losses in tax countries suffer to tax havens every year. Insisting that the UN framework convention should deal with minor issues on the sidelines while countries haemorrhage urgently needed public money is like asking the UN framework convention to build safety rails on the deck of the titanic.
5. The fallacy of undertaking thorough analysis to take any meaningful step
Finally, one of the objections to taking decisions on what commitments should be included or what protocols to prioritise at early stages in the terms of reference, is that a thorough analysis must be conducted first.
The General Assembly adopted a resolution to start intergovernmental negotiations towards a UN tax convention because most countries found that the status quo of international taxation is not working and there is ample evidence of this. When rich countries demand to start from scratch and carry out more diagnosis analysis before making even the most basic decisions on which topics the framework convention should cover, their commitment to promptly moving forward on solutions that work for all countries is not quite credible.
The failures of international tax are clear, and addressing the damage done to our societies is an urgent priority. Analysis is evidently needed – but as part of the process of reform, not as a precondition. It is time to stop making excuses and start solving the problems.
The second round of UN tax talks are running from 29 July to 16 August. Check out our rolling blog for updates on the negotiations. The negotiations sessions can be watch live on UN Web TV here.
The UK is among the biggest revenue losers to the cross-border tax abuse of multinational companies and wealthy individuals. The UK public consistently identifies the fight against such tax abuse as a key priority. And the new Labour government has been very clear on the need to crack down on tax abuse, and to reverse the erosion of public services and infrastructure that is their inheritance after 14 years of ‘austerity politics’, Brexit damage and grave economic mismanagement.
The new Labour government is fortunate that the means to tackle tax avoidance at an international level is within spitting distance. All they need to do is support it. Over the next month, the draft terms of reference will be finalised for the negotiation of a comprehensive UN convention which would provide the biggest overhaul of the international tax rules for a century. The Labour government will have to show its cards. Will they opt for continuity with the previous Conservative government’s policy and continue to frustrate efforts at the UN? Or will they mark out a new course for the UK on the world stage and support international efforts to curb tax abuse? There is a great deal to be won, and the UK could well be the biggest winner of all – if it seizes the opportunity.
The negotiations of the Ad Hoc Committee to Draft Terms of Reference for a UN Framework Convention on International Tax Cooperation have gone well thus far. Although some OECD member countries including the UK had opposed the underlying UNGA resolution, participation in the negotiations this year has been universal.
The aim of the UN framework convention on international tax cooperation (UNFCITC) is to create the first-ever, globally inclusive body for decisions over tax rules and standards. The OECD, a group of rich countries, has largely set the rules since 1960 – but it has presided over a dramatic rise of cross-border tax abuse through this period.
The OECD’s ‘two pillar’ proposals to address corporate tax abuse were scheduled for delivery in 2020, and were themselves necessitated by the evident failure of the 2013-2015 process to curb tax losses. By mid-2024, neither pillar has been finalised but both have lost much of their initial ambition.
Pillar 1 aimed to stop profit shifting, but will now only apply to a small fraction of the profits of fewer than one hundred multinational companies. The draft has also now been modified so that the United States can exert a unilateral veto to prevent enactment by any other country – a veto that seems inevitable given the US’ current politics.
Pillar 2, the global minimum tax, has been reduced from a putative 28% or 25%, to an eventual 15%. Further carveouts have been agreed that would allow for an effective rate of around 10% to remain compliant. But more obviously, adoption has been led by a group of aggressive corporate tax havens including Switzerland which are openly competing to provide (OECD-approved) subsidies to offset any additional revenue raised, while ensuring no other country receives the right to raise additional taxes instead. Benefits for non-havens are independently estimated to be far lower than OECD projections had claimed. Unsurprisingly perhaps, adoption by non-havens barely extends beyond the EU.
The gradual crumbling of the two pillars is just the latest, if the most significant element of the OECD’s failure. Coupled with growing anger at the anachronistic, even colonial nature of its dominance of rule-setting, calls for a globally inclusive decision-making body have become irresistible.
In addition to questions of fairness, the OECD’s lack of transparency is understood to be central to its inability to deliver effective outcomes. Behind closed doors, the embedded corporate lobby groups have great scope to influence proceedings, while member states are free to oppose or weaken measures which they have publicly championed.
The OECD has often lauded the ‘consensus’ nature of its proceedings, but in fact there is no formal mechanism for decision-making other than by votes of only its member states. In practice, many non-member countries and some members too have complained of the undue influence of the US, and the failure of the secretariat to provide a fair basis for inputs or to recognise objections. Our recent report, joint with many allies, sets out the array of concerns over the OECD’s litany of failure.
The transparent nature of United Nations negotiations, and more limited role for the secretariat, greatly reduce the scope for backstage manipulation of outcomes. As has been seen in the United Nations Framework Convention on Climate Change (UNFCCC), there are moments where public scrutiny can make even a powerful blocker such as the US adopt a more constructive position. Other governments too, have found that they are better able to stick to their publicly stated positions if succumbing to US pressure would be visible to the public and civil society at home.
There is of course no requirement for unanimity within UN negotiations. The negotiations are likely to follow United Nations General Assembly (UNGA) rules which are based on a preference for consensus, but the potential for majority voting when time requires it, and the possibility for super-majority votes (e.g. two thirds) for the most important decisions. With the broad support of G77 countries and many EU members for progressive tax measures and more effective cooperation, the new UK government has a clear space to seek constructive engagement on a positive agenda – with others unable to veto global steps forward to the benefit of all.
A carefully designed and positive approach to the final meeting of the Ad Hoc Committee, scheduled to run from late July to mid-August, could generate significant gains. In terms of domestic politics, this is an opportunity for the Labour UK government to set out a distinct position to the Conservatives and indicate that it will no longer seek to block progress.
In terms of international diplomacy, the UK has a chance to rebuild some of the trust in its integrity and solidarity that has been lost as a result of a series of ill-judged steps from its predecessor, and the inconsistent positions taken with respect to Russia’s invasion of Ukraine and Israel’s destruction of Gaza. Finding common cause with the Africa Group and G77, on measures that would generate common benefits, would be a positive step.
Meeting commitments to international tax cooperation that date back to 2015, at a time when official aid has stagnated and many countries face unsustainable debt burdens, would not only be a valuable signal of goodwill but would support concrete progress for public finances. The UK would be among the largest winners in revenue terms from putting an end to cross-border tax abuse, while G77 members would benefit most from re-establishing a fair distribution of global taxing rights.
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Without implication, thanks to Rachael Henry, Head of Advocacy and Policy at Tax Justice UK, for useful comments and suggestions.
According to the Eurobarometer survey on fairness and inequality, 81% of the population in the Member States of the European Union believe that income differences are too great in their country, and 78% think their government should do more to address these income inequalities. Two-thirds believe that taxation has a role to play in remedying this situation.
The reason is clear: most of the tax systems in place in Europe deliberately favour the wealthiest, to the extent that this favouritism has become an unspoken norm. In virtually all European countries, taxation of the richest individuals has fallen steadily over time. Over the last thirty years, wealth tax has been abolished in all EU countries except Spain, where some form of federal tax on the richest remains. It is high time to reverse this trend, not only for democratic reasons, but also for economic efficiency.
At the same time as these inequalities are increasing, the European Union is facing another major challenge: climate change. As the European Climate Risk Assessment points out, Europe is the fastest-warming continent, with temperatures rising around twice as fast as the global average. Extreme weather events, such as floods, storms and forest fires, are becoming more frequent and disproportionately affect the most vulnerable populations, who paradoxically emit the least greenhouse gases. Experts also indicate that this situation is set to worsen over the coming decades.
A fundamental reorientation of the European Union towards a fair and democratic climate transition is therefore imperative and urgent. As climate justice cannot be achieved without social justice, we are calling for the introduction of a tax on the ultra-rich to restore global balance, while funding social policies, the ecological transition and development cooperation.
Learning from History: Taxing Wealth in Times of Crisis
In the past, wealth has been taxed in situations deemed exceptional. This was the case during the two world wars: in France in 1916 and 1945, and in the United States in 1941, when President Roosevelt introduced a tax on the highest incomes.
While past crises have led to a rethink of prevailing economic thinking, more recent crises have done little to shake up the current economic model. The great speeches made during the 2008 financial crisis or the coronavirus pandemic, for example, have had no effect on the neoliberal model, which seems unshakeable, even unsinkable. Yet the times in which we live today, with their growing social injustices, widening inequalities and various disruptions, require leaders to have the courage to change paradigms. The social and climate emergency must take precedence!
This paradigm shift must take place at least at European level. Individually, the Member States will not have the capacity, even if they move forward in a concerted manner, to counter the mechanisms of tax competition and dumping that discourage any effort towards greater justice. Europe was created precisely to provide global solutions to these pitfalls.
Unlocking Funds for Social and Ecological Progress
At the same time, implementing the ecological transition will require tremendous financial efforts. According to a study by the European Commission, Europe’s transition to a sustainable economy and meeting its climate targets by 2030 will require substantial investment, estimated at an additional €260 billion per year.
A wealth tax would raise this money, as several studies have revealed. The latest, published by Oxfam in April 2024, shows that EU governments are missing out on more than €286 billion in revenue a year because they are not taxing the richest Europeans proportionately. This huge amount, comparable to Finland’s GDP, is equivalent to around €33 million in uncollected tax revenue every hour.
A wealth tax would therefore be a very useful tool if we want to invest massively in the social and ecological transition and if we want to avoid average and poor households paying for this transition. This tax is not only necessary but also fair to share the burden of the green transition, especially as the richest people in the world contribute disproportionately to CO2 emissions. It is not just a matter of economic efficiency, but also of fiscal justice and democracy.
Take Action: One Million Signatures to Transform Europe
In 2023, a European Citizens’ Initiative (ECI) calling for a wealth tax was launched. This procedure is a concrete tool for action that is still little known in the European Union. If successful, it can be used to ask the European Commission to draw up a legislative proposal in response to the request. In this case, the aim is to introduce a European wealth tax to finance the fight against climate change and inequality. It would contribute to the EU’s own resources by generating revenue to co-finance the ecological and social transition policies pursued by the Union and its Member States.
For this initiative to succeed, we now need to collect one million signatures across the whole of Europe by 9 October, while reaching the minimum threshold in at least seven Member States. One million signatures may sound like a lot, but it’s not much if we mobilise the public, all those who are calling for greater social justice and resources for the ecological and social transition. That’s why we’re counting on a coalition of politicians, trade unions, NGOs and members of civil society who, together, can turn this initiative into a major popular and civic victory.
Let’s seize this opportunity to demand greater social and fiscal justice throughout the European Union!
We’re delighted to announce a successful bid for research funding from the Canadian government’s Social Science and Humanities Research Council (SSHRC). The Tax Justice Network will be supporting the three-year project, led by Dr Masarah Paquet-Clouston of Université de Montréal, with Prof. Nicholas Lord and Dr Tomáš Diviák of the University of Manchester. Here’s the summary of the research proposal – more soon as work gets underway!
Facilitating Crimes for Financial Gains: Understanding the Dynamics of the Online Market for Shell Companies
This research sheds light on the emergent online market for the sale of shell companies. These companies, though legal in creation, are central to the organisation of illicit finances associated with serious crimes such as organised crime, white-collar offences, money laundering, and tax evasion. This centrality is significant as an estimated US$1.6 trillion of illicit finances flow through the global financial system each year, much of which is organised via shell companies.
Today, these companies can be purchased online at various prices and with varying features by anyone interested in obtaining a company quickly in a preferred jurisdiction without having to go through the company formation process themselves. This burgeoning online market lowers barriers to entry to any customers interested in concealing, controlling and/or converting criminal and illicit finances domestically and transnationally. Given this, there is a pressing need to better understand the size, scope, and structure of this online market, and what are the dynamics, networks, and conditions that underpin market supply, demand, and competition.
The primary goal of the research is to map out and comprehend the size, structure, and dynamics of the online market for shell companies. This involves identifying key suppliers and jurisdictions as well as understanding the structures, and mechanisms enabling this market.
To do so, four objectives have been established:
Provide a comprehensive representation of the online market for shell companies.
Examine the pricing strategies employed by shell company suppliers in relation to specific jurisdictional characteristics.
Understand shell suppliers’ specialisation in jurisdictions’ offering.
Illustrate the interconnections between suppliers’ jurisdictions and the jurisdictions of the shell company they offer.
Data will be collected online to meet these objectives, using a blend of quantitative methods including multilevel modelling and network analysis. A fifth objective aims to automate the data collection and analysis process for research continuity. Such automation will allow for regular audits of the market over time, build longitudinal datasets, and inform on the impact on the work of regulators and civil society, once policy actions take place.
The research is a collaborative effort between a team of interdisciplinary researchers from Université de Montréal and the University of Manchester and a key partner, the Tax Justice Network. The Tax Justice Network is a global network dedicated to pioneering research on the operation of tax and financial systems, their impact on society, equality and the economy, and the world of offshore tax abuse and financial secrecy. The participation of the Tax Justice Network as a partner ensures that the research is grounded in real-world applications and reaches a wide audience, including policy makers and the public.
Through its expertise, the network plays an integral role in the research by not only offering key datasets on jurisdictions’ characteristics, but also by contributing to the research design, data collection, interpretation of the findings and the drafting of evidence-based policy recommendations.
The study will uncover the dynamics behind this crime-facilitating transnational market. By integrating practical insights from the Tax Justice Network, the findings are expected to inform and enhance policy development, particularly in the areas of financial regulation, crime prevention, and international law, to counter the negative impacts of this emergent digital market.
After the infamous ruling of November 2022 by the European Court of Justice that rolled back public access to beneficial ownership information, another case now pending in the European Court of Justice could deal an even worse blow to the fight against transparency and tax justice. Once again an individualistic concept of human rights, particularly the right to privacy, is being weaponised, this time to protect lawyers who enable illicit financial flows when they create secrecy vehicles such as companies and trusts.
Introduction
The EU is still trying to recover from the November 2022 strike against transparency that resulted in many EU countries, starting with Luxembourg, closing their public beneficial ownership registries. We welcome the approval in 2024 of the EU AML Package with provisions for legitimate interest access by civil society organisations, journalists, academia as well as foreign authorities is welcome, though it’s a poor substitute for public access.
Now, a new EU case concerning lawyer’s professional confidentiality could deal an even worse blow to the fight for transparency and tax justice. The new case arose from a request by Spain’s tax administration to Luxembourg for information about a law firm’s services to a Spanish company. The exchange of information request was based on Directive 2011/16/EU on Administrative Cooperation in the Field of Taxation. The Spanish authorities were specifically interested in details of the acquisition by an investment group of a Spanish company and shares in another entity. The law firm refused to provide the information based on their legal professional privilege (LPP), which protects a lawyer’s communications with their client. Luxembourg’s tax administration imposed a fine on the law firm for failing to comply with the provision of information request. The law firm, with the support of the Luxembourg lawyers’ Bar Association, challenged the decision before the Luxembourg national court. The Luxembourg administrative court dismissed the action, so the law firm and the Bar lodged an appeal with the Higher Administrative Court. This Court decided to stay the proceedings and referred questions to the European Court of Justice regarding the right to privacy vis a vis legal advice provided by lawyers on matters of company law.
Before the European Court of Justice delivers its ruling, the Advocate General issues a non-binding legal opinion. On 30 May 2024, the Advocate General to the European Court of Justice Juliane Kokott published her legal opinion on the case. She agreed with the law firm. In essence, the Advocate General considered that lawyers should enjoy legal professional privilege (aka a right to secrecy) not just when they are defending a client in court, but also when they are hired by the wealthy to create companies and other investment structures.
This legal opinion will bolster the (ab)use of this special confidentiality of lawyers to protect criminals, high net worth individuals and multinational companies from scrutiny by authorities when creating secretive structures.
This blog post has three parts. First, it looks at this case within the context of a campaign to promote human rights from an individual perspective (eg privacy, data protection) against human rights from a wider-society perspective (eg health, education, housing, a clean environment, rule of law). Second, the blog post offers an analysis of the legal opinion itself in light of the secrecy risks that it creates. Thirdly, it finishes with a long-overdue proposal to establish a clear limit to lawyers’ legal professional privilege when it comes to legal advice unrelated to a current trial.
1. Individual rights versus the public interest
There appears to be a campaign to argue for the human rights of rich and powerful people and corporations against the public’s right to transparency and tax justice. This new legal case on lawyers’ confidentiality is another attempt in the ongoing campaign by law firms and data protection authorities in Europe and elsewhere to weaponise privacy, and its corollary data protection, against public-interest transparency advances. So far, the campaign has covered:
upon request exchanges of information between tax authorities (the new legal opinion)
automatic exchange of bank account information (eg in Belgium and the UK),
mandatory disclosure rules to disclose aggressive tax planning and schemes to circumvent automatic exchange of information or hide beneficial owners (eg in Argentina, Belgium and Ecuador).
In parallel to this campaign to use courts to strike down transparency advances, there is academic work to bolster individual’s rights over public interest. For instance, Advocate General Kokott co-authored a paper published in 2021 on Taxpayers’ Rights, where she and fellow authors detailed their approach to the human rights of taxpayers. While they accepted that there is a ‘collective right’ to tax justice, and even that it is ‘fundamental’, their view was that ‘the protection of fundamental collective interests must not go so far as to infringe individual fundamental rights’. From this perspective, ‘the international fight against tax avoidance, evasion, and fraud’ is a matter for tax authorities, governments and the Organisation for Economic Cooperation and Development (OECD).
This idea of human rights from an individual perspective against human rights from a wider societal perspective has four major flaws.
First, it assumes that the collective rights of the public are currently adequately protected by governments and authorities. However, tax and law enforcement authorities tend to be understaffed, lack appropriate budgets and technological resources, and in some worse cases even suffer from political pressure or corruption. To make matters worse, incentives to protect the enforcing of laws and rights in favour of society as a whole are much weaker than the incentives for powerful individuals to benefit themselves. In other words, it’s much easier for a rich tax evader to hire lawyers to protect their rights in court than it is to mobilise the many individuals whose human rights to health, education and a decent life depend on fair and effective taxation, the fight against money laundering and corruption, etc. This is the classic challenge of any collective action to overcome unjust structures.
Secondly, it results in a view of human rights that protects wealth and advantage over the basic needs of all individual human beings because it considers civil and political rights as more important than social, economic and cultural rights. This perspective sees all people, including ‘legal persons’ as equal, with equal rights. The consequence is that human rights legislation potentially protects companies, money and property to the same extent, or more than, basic human needs for health, housing, etc. However, it is essential to recognise that social and economic rights of all individuals are just as important as civil and political rights. Critical to this seeming conflict between individual rights versus collective rights is the recognition of States as key duty bearers for human rights of all citizens, especially when considering the needs of vulnerable people. The Principles for Human Rights in Fiscal Policy sets out how “states must be free from undue influence from corporations or those working to further their fiscal interests to the detriment of human rights realization”.
Thirdly, it is based on perceptions that tax enforcement, transparency or equality before the law only remotely and indirectly affect human rights, including not just health, education and housing but also the right to life or freedom. As we explain in our paper “Why beneficial ownership registries aren’t working”, it appears that people are more willing to allow for intrusive measures (eg airport checks on passengers’ luggage and personal items) when the danger to the right of life is more direct and obvious (eg stopping a terrorist attack). However, corruption, money laundering or tax abuse are not perceived as a threat to life and other basic human rights, and courts tend to be used to assert legal protections for the wealthy and powerful to use secrecy over transparency measures such as public access to beneficial ownership information or now, establishing limits against legal professional privilege. Nevertheless, the cases of fires and explosions in Argentina’s concert hall, the Bangladesh factory or Lebanon’s port show that corruption also results in the loss of life, facilitated by secretive legal vehicles, a view firmly established among global institutions such as the World Bank for over a decade.
Fourthly, no right is absolute and particular rights should not be exploited to undermine other rights. Just as the interest to board an airplane without passing a security check should not be understood as an interest to be protected by the right to free movement, neither should the refusal to provide information to authorities (or to publicly disclose beneficial ownership information) be understood as something that should be protected by the right to privacy.
The individual interest in secrecy by the rich and by powerful corporations must also be balanced against the individual and collective rights of others. Ensuring secrecy in favour of law firms and companies also affects both “individual” civil and political rights (e.g. the right to access information), and the “individual or collective” dimensions of economic and social rights. For instance, rights such as the right to health or education have an individual component as well because they protect individual claims before the law – having individual access to healthcare or to primary education).
Even if the Court found that the law firm has a legitimate defence in claiming protection under the law to refuse to divulge information, no right should be considered absolute, and the tools of balancing or harmonising conflicting rights should be used appropriately. That means in our view that the requirement to publish certain types of information, such as beneficial ownership information or a simple request for information by an authority in this case, is not a disproportionate restriction of the right to privacy because it protects other rights that would be at risk if secrecy were maintained in these cases.
In conclusion, academic work and lawsuits are pushing for a view of human rights that protects the rights to privacy and private property of companies and other legal structures. The problem with this perspective is that a blanket wall that protects secrecy around the ‘right to set up a corporate investment structure’ may end up aiding activities that are clearly against the public good, such as corruption, money laundering, tax evasion and avoidance. Legal professional privilege would make it impossible to distinguish between what is lawful and unlawful, as everything a lawyer advised on would become confidential.
2. An analysis of the legal opinion
The Advocate General’s Opinion gives an extraordinarily wide interpretation of the right to privacy under the Charter of Fundamental Rights of the EU which would have potentially enormous consequences for tax enforcement and cooperation in the EU. Three main points can be singled out:
2.1 Protection of privacy and family life should not extend to enabling illicit financial flows.
Article 7 of the Charter of Fundamental Rights of the European Union states that ‘Everyone has the right to respect for his or her private and family life, home and communications’. The Advocate General argues that ‘legal persons too can rely on the right to respect for private life’. This legal opinion proposes to go well beyond a previous decision of the Court which accepted that the individual’s right to protection of their personal data extended to when their name appears in that of a company. The legal opinion states:
It is true that the Court has held that ‘legal persons can claim the protection of Articles 7 and 8 of the Charter … only in so far as the official title of the legal person identifies one or more natural persons’. However, that distinction concerns only the processing of personal data under Article 8 of the Charter. Conversely, legal persons too can rely on the right to respect for private life that is protected by Article 7 of the Charter. This must be particularly true of the protection of communications, likewise protected by Article 7 of the Charter, in particular LPP…. The object of protection, after all, is the relationship of trust between lawyers and their clients. Such a relationship also exists between the lawyers brought together within a company, on the one hand, and their clients or their clients’ agents, on the other. The legal form within which the lawyer or the client acts is immaterial in this regard.
Yes, you read that right. According to the Advocate General’s legal opinion, the right to ‘respect for private and family life, home and communications’ applies not just to real people, but also to companies and law firms, and hence to communications between them!
Contrary to the expansion of the right to privacy to protect the secrecy of law firms and companies, one could consider the report by the Special Rapporteur on the promotion and protection of the right to freedom of opinion and expression in the aftermath of the European Court of Justice’s November 2022 ruling on beneficial ownership registries. The Special Rapporteur considered the balance between conflicting interests in terms of the right to privacy:
“The relationship between data protection, the right to privacy and the right to information is complex and requires a careful balancing of interests. That in turn requires that laws and policies clearly define, on the one hand, the personal information that is protected legitimately under the right to privacy and, on the other, the public interest justifying disclosure. Under such a test, even if the information is determined to be personal and its release would infringe privacy, it may be disclosed if the public interest in release is more important than the privacy interest.” (A/HRC/53/25: Sustainable development and freedom of expression: why voice matters – Report of the Special Rapporteur on the promotion and protection of the right to freedom of opinion and expression)
Additionally, the idea of companies and law firms having equal rights to individuals and the general public is in direct conflict with their responsibilities as outlined in the Guiding Principles on Business and Human Rights. Business enterprises have a responsibility to respect human rights, including not only infringing on others’ rights but also addressing adverse human rights impacts with which they are involved. Allowing businesses to enjoy secrecy around matters that could cause the widespread infringement of human rights for large groups of people through tax abuse, money laundering or corruption would be antithetical to the very idea of human rights principles.
2.2 Lawyers are not necessarily always interested in the rule of law
The Advocate General argues that legal professional privilege is a fundamental right for a just society:
After all, lawyers are not only representatives of their clients’ interests but also independent collaborators in the interests of justice. Consequently, LPP [legal professional privilege] protects not only the individual interests of lawyers and their clients but also the public interest in justice being administered in such a way as to fulfil the requirements of the rule of law. Thus, the special protection afforded by LPP [legal professional privilege] is also an expression of the principle of the rule of law on which the European Union is founded…
The legal opinion argues that legal professional privilege extends to any legal advice, not only from a lawyer (para. 61), and protects not only the individuals but the general public (para. 58). This means that any powers given to public authorities to ensure due compliance with the law, including tax law, must be ‘balanced’ against the right of those devising abusive schemes to keep their advice confidential. In the words of Advocate General Kokott: ‘In the light of the importance of LPP [Legal Professional Privilege], after all, fact-finding enquiries cannot be conducted at any price’ (para. 59).
If authorities are unable to obtain information due to legal professional privilege, how can they verify compliance with the law, and hence that the rule of law actually is being upheld? It appears as if the Advocate General assumes that all professionals giving legal advice always act in the interests of justice; not only are they never corrupt, but they never try to find loopholes and weaknesses in the legal rules in the interests of their clients, which they seek to conceal from regulatory authorities. Allowing them to keep their schemes secret would blindfold authorities, which are already so under-resourced that they have an almost impossible task in trying to stop tax evasion and avoidance.
It is not clear how the Advocate General can assert this in light of the evidence of the involvement of professionals such as lawyers and accountants in creating offshore companies facilitating illicit financial flows, especially as revealed by major leaks by whistleblowers, notably the Panama Papers and the Paradise Papers.
Contrary to the view that lawyers always stay within the law and promote the rule of law, the Financial Action Task Force (FATF), which sets global anti-money laundering standards, has been warning about the role of legal professionals in money laundering for more than a decade:
…the use of legal professionals to provide a veneer of respectability to the client’s activity, and access to the legal professional’s client account, is attractive to criminals. There is also a perception among criminals that legal professional privilege/professional secrecy will delay, obstruct or prevent investigation or prosecution by authorities if they utilise the services of a legal professional. (FATF 2013 report on “Vulnerabilities of Legal Professionals”, page 23)
According to the Financial Action Task Force, the situation had not changed much six years later:
Criminals may also seek out legal professionals (over other non-legal professions) to perform the services listed in R.22 with the specific criminal intent of concealing their activities and identity from authorities through professional privilege/secrecy protections. (FATF 2019 “Guidance for a risk-based approach for legal professionals”, page 23).
The Financial Action Task Force also explains that the mere possibility of invoking legal professional confidentiality directly affects investigations and can let lawyers off the hook:
… differing interpretations by legal professionals and law enforcement has at times provided a disincentive for law enforcement to take action against legal professionals suspected of being complicit in or wilfully blind to ML/TF [money laundering/terrorism financing] activity…
Claims of legal professional privilege or professional secrecy could impede and delay the criminal investigation… In many instances this means that the claim of legal professional privilege or professional secrecy will need to be resolved by a court, which can delay the investigation process for a substantial period of time. As time is a critical factor in pursuing the proceeds of crime, this may influence the decision of investigators of whether to investigate the possible involvement of the legal professional or to seek evidence of their client’s activities from alternative sources. (FATF 2013 report on “Vulnerabilities of Legal Professionals”, pages 6, 31-32)
Using human rights to undermine legitimate inquiries by public authorities authorised by democratically approved laws is a travesty of the rule of law.
2.3 Protection of human rights should not be used as a green light to create secretive companies and investment structures
The most dangerous part of the legal opinion is the broad confidentiality protection for lawyers’ involvement in the formation of companies and investment structures, which is one of the main ways to create complex secrecy structures which may engage in illicit financial flows.
The Advocate General writes:
Since it is therefore impossible to draw distinctions between the various fields of law – as Luxembourg has done in this case – when determining the scope of the protection afforded by LPP, that protection extends to legal advice in the field of company and tax law, too. In particular, advice on the establishment of a corporate investment structure such as that at issue here also falls within the scope of the protection afforded by LPP.
This extension poses grave dangers, considering that the Financial Action Task Force has identified several cases of legal professionals assisting or directly engaging in money laundering through the creation of companies.
Inherently these activities pose ML/TF [money laundering/terrorism financing] risk and when clients seek to misuse the legal professional’s services in these areas, even law-abiding legal professionals may be vulnerable. The methods are: … creation of trusts and companies; management of trusts and companies; …; and setting up and managing charities. (page 4).
Annex 5 to the same Financial Action Task Force 2013 report lists 126 examples of real cases where legal professionals were involved in money laundering or financing of terrorism. Out of these, 45 cases included the method of a legal professional obscuring ownership through the creation of companies, trusts, use of bearer shares or acting as trustees. For instance, “Case 59” involved “legal professional creates complicated foreign structures and transfers funds through client account while claiming privilege would prevent discovery.”
To prevent the facilitation of corrupt activities, legal privilege or professional secrecy should protect only activities that are specific to the legal profession, such as ascertaining the legal position of a client, providing legal advice, or representing a client in legal proceedings. These protections should not extend to activities performed by a legal professional that are purely financial or administrative in nature, such as handling client funds, acting as a nominee director or shareholder on behalf of a client, or acting as a formation agent of legal persons.
3. Establishing limits on professional confidentiality
Although the weaponisation of privacy has hit mostly in the European Court of Justice, international standards (including those set by the Financial Action Task Force or the Global Forum) also share some blame for allowing professional confidentiality to become a barrier to transparency and protection of fundamental human rights principles.
Already, the Financial Action Task Force’s Recommendation 23 allows lawyers not to file suspicious transaction reports, based on professional confidentiality. The actual text of Recommendation 23 states that lawyers, notaries, accountants and other legal professionals are required to report suspicious transactions when, on behalf of or for a client, they engage in, among others, the organisation of contributions for the creation, operation or management of companies or the creation, operation or management of legal persons or arrangements, and buying and selling of business entities. However, the Interpretative Note then states that legal professional privilege can protect lawyers against filing information:
Lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report suspicious transactions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.
It is for each country to determine the matters that would fall under legal professional privilege or professional secrecy. This would normally cover information lawyers, notaries or other independent legal professionals receive from or obtain through one of their clients: (a) in the course of ascertaining the legal position of their client, or (b) in performing their task of defending or representing that client in, or concerning judicial, administrative, arbitration or mediation proceedings. (emphasis added).
Likewise, the Global Forum on Exchange of Information for Tax Purposes’ Standard under Section C.4.1 allows countries not to exchange information when it would violate attorney client privilege:
Requested jurisdictions should not be obliged to provide information which would disclose any trade, business, industrial, commercial or professional secret or information which is the subject of attorney client privilege or information the disclosure of which would be contrary to public policy.
Where to draw the line between lawyers’ confidentiality and requiring them to provide information to authorities?
Legal professional privilege can be thought of as a spectrum following the letter “V”. The three extremes are easy. The two top vertices are clearly beyond legal professional privilege: one would include a lawyer who isn’t acting as one, but rather as a salesperson or manager. The other would refer to a case where the lawyer is acting illegally and committing a crime (eg engaging in money laundering). On the other hand, the bottom vertex involves a lawyer defending a client in court in the context of a trial, a situation that in most (if not all) countries would ensure the protection of legal professional privilege. The question is where to draw the line for legal advice.
Source: elaborated by author
In relation to the first top vertex, the Advocate General states that there would be no legal professional privilege when a lawyer acts in a commercial way as part of a management consultancy firm:
…that protection covers only information shared in the context of an activity involving the provision of legal advice as part of a specific instruction. In addition, however, lawyers may engage in commercial practice too, as part of a management consultancy firm, for example. To the extent that they do, lawyers do not practise as independent collaborators in the interests of justice. By extension, therefore, information obtained in that context does not require the same protection as information obtained as part of the provision of legal advice.
The protection provided by lawyer-client confidentiality does not apply when a lawyer is knowingly assisting, aiding or abetting the unlawful conduct of his or her clients. In such circumstances, the lawyer would be committing a criminal offence in most jurisdictions (page17).
Drawing the line for “legal advice” should depend on the risk of illicit financial flows
The main question is what happens when a client seeks legal advice from a lawyer before any legal proceedings apply. In this case, the conduct, either legal or illegal, is merely being planned or considered. We propose that the line should be drawn depending on the risks of illicit financial flows.
If the legal advice is about how to interpret the law or how to comply with the law exclusively for commercial purposes, this legal opinion would likely be covered by legal professional privilege, but this shouldn’t create any risk of illicit financial flows. For instance, we are talking about a “doing business report” where a lawyer explains to a foreign investor what types of companies there are in the country, or what would be the most suitable type of company or investment, exclusively based on the commercial (non-tax) purpose of the client.
If the legal advice sought from the lawyer is to identify all the loopholes in the law to escape the law, eg how to set up a bank account to circumvent automatic exchange of bank account information, how to set up a discretionary trust to prevent asset recovery or to exploit secrecy or asset protection against authorities or third parties in any other way, then this should not be subject to confidentiality protection because of the high risk of illicit financial flows.
This finally brings us to the issue of tax advice. If a client asks a lawyer for tax advice to stay within the literal meaning of the law and within the spirit of the law, this could also enjoy the protection of professional confidentiality because it wouldn’t be creating illicit financial flows risks. For instance, we refer to a case where a tax lawyer explains that tax incentives may be legally obtained by investing X percent in green energy, or by financing through debt rather than equity because the law allows for special interest deductions. In other words, the lawyer would merely be explaining what the law is trying to say. Tax authorities should have no problem with that.
However, a lawyer who offers tax advice to stay within the literal meaning of the law, but against the spirit of the law or against a likely interpretation of the law by the tax administration, should be considered unlawful and should therefore not enjoy legal confidentiality because of the tax abuse risks.
The next figure illustrates where the line could be drawn depending on the low/no risk of illicit financial flows (in blue) versus the high risk of illicit financial flows (in red):
Source: elaborated by author
The legal opinion makes it impossible to draw the line in practice, making everything a lawyer touches privileged information
The approach adopted by Advocate General Kokott creates a Catch-22. It makes it difficult to apply the distinction between being covered or not by legal professional privilege, even in a situation where a lawyer is acting illegally.
The whole point of giving authorities fighting illicit financial flows, including a tax administration, the right to obtain information is to enable it to determine if any unlawful activity is taking place. To allow a refusal unless the lawyer knows that unlawful conduct is involved assumes that only the client may be acting in a potentially unlawful way. If a lawyer has indeed knowingly advised an unlawful act, they would be unlikely to divulge the information to the authority. Lawyers who engage in money laundering have promoted their special confidentiality rights as a way to avoid authorities. Likewise, lawyers engaging in “tax mining” who devise tax dodging schemes generally claim that they think the schemes may be lawful, but they do not guarantee this. Unless authorities can obtain information about the scheme, they have no way to even look at, and challenge the lawyer’s advice.
This would give free rein for enablers of all kinds to devise and propose schemes for corrupt purposes such as money laundering, tax evasion and avoidance, leaving authorities powerless to challenge them.
A committee to decide on each case
While most people would agree that there should be no confidentiality protection when a lawyer acts in their personal capacity or when they are evidently offering to breach the law, there is a need for international standards and for countries to establish rules when the case isn’t as obvious. This would include cases where a client seeks legal advice on:
how to circumvent laws (eg how to avoid the automatic exchange system, how to hide the beneficial owner or evade taxes), or
how to stay within the text of the law, but going against the spirit of the law, or going against a likely interpretation or view by the tax authorities.
At the same time, it should not be up to a lawyer to qualify their legal advice, because they would always claim to be protected by confidentiality. It would thus make sense, that whenever authorities request information from a lawyer and they refuse to provide it, invoking legal professional privilege, then the documents should be sent to a special (and speedy) committee. This committee should include members of the bar of association, competent authorities and judges to determine which of the documents, if any, can be shared with authorities. The committee could also determine if any information should be redacted, provided the committee can prove that no unlawful or abusive conduct is being enabled by the lawyer.
Conclusion
The European Court of Justice is set to again deliver a ruling that could have a huge impact on transparency, exchange of information and the fight against illicit financial flows, especially if it considers that any case of company formation by lawyers would be subject to legal professional privilege.
In our view the Court should firmly reject this attempt by the Advocate General to undermine the powers of authorities, including tax administrations, to obtain information about business arrangements. Competent authorities are themselves already under strong obligations to protect the confidentiality of taxpayers’ information and personal data. This applies also to information they share and obtain through legal procedures now established for mutual assistance, such as the EU Directive. We fail to see how the rule of law is in any way affected by giving them the powers necessary to obtain information they need to enforce the law.
The Court should also draw a firm line to reject the specious arguments that would extend the human right to privacy and family life and communications to protect companies and business arrangements. This would be a distortion of the concept and purpose of human rights protection.
Today is Public Services Day, and I’m remembering as a child listening to my family complain about how supposedly bad public services in Brazil were. These services were costly too, they would say, costing you “double” the price of access: you’d pay taxes for the public provision of services that you wouldn’t use and then pay again for the private provision that you did use. Perhaps this sounds familiar to you.
Public services form the backbone of a healthy, functioning society. They include essential services such as healthcare, education, transportation and social security. These services are vital for ensuring that all members of society, regardless of their economic status, have access to basic needs and opportunities for personal and professional growth. High-quality public services contribute to social stability, reduce inequality and promote well-being.
Despite their importance, many public services are underfunded. Governments around the world have increasingly resorted to austerity measures, which involve cutting public spending to reduce budget deficits. These cuts often hit the most vulnerable populations hardest, leading to overcrowded hospitals, under-resourced schools and inadequate social support systems.
In these scenarios, privatisation is often presented as a solution to the funding gaps in public services. However, privatisation poses significant risks. One of the risks associated with eliminating public, free access is the potential for a vicious downward spiral, where reliance on out-of-pocket services increasingly extorts more expenditure. As fees are hiked, individuals may find themselves trapped in debt due to false diagnoses, especially in worst-case scenarios within the healthcare sector.
It is crucial to have a reliable and adequate funding mechanism to ensure the long-term sustainability and quality of public services. This involves creating a tax system where those with the most contribute the most. Progressive taxation ensures that wealthy individuals and multinational corporations contribute a fair share of their income to the public good. Such a system can generate the necessary revenue to support and improve public services, benefiting all members of society.
Tax justice is our social-superpower and a critical component in addressing the funding challenges public services face. By ensuring that the wealthy and corporations pay appropriate taxes, governments can secure the resources needed to fund essential services without resorting to austerity or harmful privatisation measures.
Tax justice can:
Expand revenue, ensuring that the tax system generates sufficient revenue to fund public services adequately.
Promote redistribution by using progressive taxation to reduce inequality by redistributing wealth from the rich to the rest of society.
Reprice products to discourage harmful activities (like pollution) and encourage beneficial ones (like renewable energy investments) by adjusting taxes.
Support representation by ensuring that all citizens, especially those in marginalised communities, have a voice in how tax revenues are spent, promoting transparency and accountability.
Promote reparation by using tax policy to address historical injustices and colonial legacies.
Our future is public, and ensuring tax justice is pivotal for the sustainable provision of high-quality public services. By adopting a fair and progressive tax system, we can generate the necessary funds to support healthcare, education, infrastructure and social security. It fosters a sense of community, ensures that everyone pays their fair share, and helps to build a society where no one is left behind. By embracing tax justice, we can lay the foundation for a more equitable future where public services are the cornerstone of a just and inclusive world.
Governments around the world pander to corporations in particularly polluting industries, effectively subsidising their carbon emissions and environmental degradation through extreme tax incentives.
Today, the Tax Justice Network launches a new report laying out in detail how corporate tax incentives undermine climate justice. We provide qualitative evidence of the prevalence of tax incentives in two particularly polluting sectors – shipping and extractives. In the absence of an effective global corporate minimum tax rate, and resulting from entrenched, decades old unjust power dynamics in global tax governance, we show how these incentives forgo critical public revenue needed to fill the climate finance gap. This revenue is important particularly for the most climate vulnerable communities in the global south – countries that at baseline already relatively suffer the most from global tax abuse.
Tax justice is climate justice
As we have laid out in our position paper, climate and tax justice are intimately linked: both movements aim to redress deeply discriminatory practices and inequalities upheld by a minority – of countries, and of people – at the expense of everyone else. The polluter pays principle is at the core of this link: those who emit more should pay for the negative impacts they create. But as we show, when many of the laws and loopholes that exist in corporate taxation are utilised by, or even exclusively applicable to polluting sectors, those who emit more can and do pay much less – a direct contradiction of the principle. Nevertheless, both the tax and climate justice movements mostly operate alongside each other, rather than together. But climate justice advocates would be hugely empowered by greater knowledge of the ins and outs of corporate tax policy and how it so deeply affects crucial climate outcomes. Tax incentives are just one, low hanging example.
Mass scale incentives for polluting sectors
Tax incentives are changes to the tax rules that reduce what individuals or companies are liable to pay, thus providing an economic benefit. They are sometimes made available only to specific groups of people or sectors. Based on our Corporate Tax Haven Index, we show that many countries offer tax incentives specifically to two of the world’s most polluting sectors: shipping and extractives. Shipping currently represents about 3% of global greenhouse gas emissions, on par with aviation. Worryingly it is projected to grow to up to 10% of global emissions by 2050. The vast, diverse and ever growing extractives industry – with China at the forefront – is estimated to produce up to 15% of global greenhouse gas emissions.
Our analysis finds that incentives are widespread in the shipping and extractives sectors. They include tax rates of effectively zero per cent for shipping operators, and pervasive tonnage tax regimes, some of which extend to extractives activities like deep sea drilling. Corporate tax havens love polluting multinationals, and are heavily implicated in undermining the polluter pays principle by helping these companies increase their profitability through profit shifting.
Many countries also offer incentives for companies operating in the extractives industries, including fossil fuel companies. This includes countries that aren’t themselves resource rich. Illegal fishing, logging and mining are plunged into further secrecy through different levels of exemptions of corporate income, sometimes shrouded behind Special Economic Zones, thus further reducing the accountability of these sectors.
Challenges and solutions
Harmful tax incentives for polluting industries speak to two particular challenges of tax-for-climate we previously identified.
Firstly, governments are depriving themselves of badly needed public revenue in the billions of dollars. As we argue in the report, the Global Anti Base Erosion (GloBE) Rules under the OECD’s Pillar Two recommendations, with the new minimum effective global corporate tax rate of 15% is anything but a solution for this problem and leaves loopholes and incentives in place. Luckily, there are more ambitious proposals for an alternative global minimum tax rate such as the one by the South Centre. For example, countries can pursue an alternative, effective global tax rate by acting in regional groupings and unilaterally, including revisiting tonnage tax regimes.
Second, the prevalence and nature of harmful tax incentives are emblematic of deep structural inequalities in global tax governance. This system is heavily shaped by OECD leadership. Marked by exclusionary and opaque leadership, which negates countries’ sovereignty over their taxing rights – especially in the global south – the OECD has been unable to structurally reform its own global tax rules, and to significantly curb tax abuse. Only a democratic revolution in tax rule-making can shake up the existing system under which governments effectively collude with polluting corporations and continuously subsidise them through mass-scale tax incentives. Fortunately, this revolution is currently underway at the UN where countries are negotiating a game-changing UN framework convention on tax.
The astronomical cost of tax incentives – both financial and moral – is nothing new.
Locked in a race to the bottom, and under the false economy of staying “competitive” for investments, governments have been knowingly giving up revenue at mass scale through. They pander to corporate powers that are major culprits in the climate crisis – caught greenwashing and lying over and over again, and litigating aggressively when they believe their profits are endangered through environmental legislation, in barely disguised contempt of the polluter pays principle. Financial grooming, threatening, gaslighting – it all sounds very much like the worlds’ worst toxic relationship.
When governments systematically fail to use effective, progressive tax policy to help fill their budgets, it is no wonder that austerity policies are widespread. It is also no wonder that the worst polluters – both historic and current – don’t seem to like the idea of paying for their harmful climate impacts very much at all.
The just concluded, bitter and ultimately fruitless negotiations at the Bonn Climate Change conference over climate finance commitments show how unwilling high income countries are to provide climate compensations for the global south, especially in the form of Loss and Damage funding. As one analysis put it, “developed countries have sought to focus the talks on the many ‘layers’ of finance that they see making up the final goal. They emphasize that this needs to be agreed before a number can be picked.” Rich countries stall a financial commitment in the form of unconditional climate payouts. Their “layers” instead include private finance, loans, domestic resource mobilisation and carbon markets. Perhaps holding up a mirror to their own failures, they refuse to realise what mobilising corporate tax income could do for climate finance – and public services in their own backyard.
The role of the ongoing UN tax convention process
Luckily, global tax governance is at a major inflection point. Over the past sixty years, and without a democratically agreed mandate, the OECD has positioned itself as the de facto standard setting body on international tax matters. But last year, and after a long struggle by Global South countries and civil society organisations, a once-in-a-century opportunity has emerged for international tax governance to be defined in a truly inclusive universal forum. A landslide majority of countries – home to 80 per cent of the global population – voted last year in favour of starting negotiations on a United Nations Framework Convention on International Tax Cooperation (UNFCITC). For the first time, all countries can work together on an equal footing to set the parameters for the negotiation of a legitimate binding instrument governing international tax cooperation. As our report shows, this is essential to address the fallout from the climate crisis, and to work towards achieving the Sustainable Development Goals.
The UN framework convention on tax can be an opportunity to establish standards that prevent tax incentives from being used as harmful tax competition tools, which erode the tax base and subsidise the burning of the planet. These standards should also be aligned with other agendas adopted within the UN, including the Framework Convention on Climate Change and the Paris Agreement. Any standards on tax incentives should firmly establish that no profits-based tax incentives should be granted to the most polluting sectors, including shipping and extractives – and especially the fossil fuel industry. The framework should ensure that tax advantages are only available upon proof of mitigation or eradication of environmental externalities. In short, the framework convention is a chance to enshrine the polluter pays principle as well as common but differentiated responsibilities and thus the put the spotlight on those most responsible for both historic and current emissions, and global tax abuse.
Conclusion
Recent years have seen unprecedented demand for action from countries around the world to address both climate crisis and global tax abuse. Economically and morally unjustified incentives and exemptions to existing tax rules granted to multinational corporations are key in this fight.
For a hope of success, and along with harmful fossil fuel subsidies and large-scale decarbonisation efforts, the tax justice and the climate justice movements need to call for ending morally bankrupt tax incentives that fuel the climate crisis.
For over sixty years, the Organisation for Economic and Cooperation has held dominion over the stewardship of international tax negotiations. In that time, progress achieved in putting a stop to crossborder tax abuse, which now costs governments around the world some US $480 billion a year, has been meagre at best.
With negotiations on a new framework tax convention now moving forward at the United Nations, the OECD’s leadership of standard setting on international taxation is for the first time in doubt. The move to initiate talks at the UN follows an historic resolution brought forward by the Africa Group, which was in turn motivated by frustration over the exclusionary dynamics of the OECD process. It can be argued that the OECD, as an institution mandated only to represent the interests of 38 advanced economies that make up its membership, was never an appropriate forum to tackle a problem which is, but it very nature, global. As demonstrated in the State of Tax Justice report, OECD member states are responsible for facilitating the vast majority of revenue losses to international tax abuse and, as such, have a vested interest in impeding the kind of radical reform that is so badly needed.
A new briefing produced by Tax Justice Network in collaboration with a coalition of allies systematically unpacks the various arenas in which the OECD has proven itself unfit to lead negotiations on international tax cooperation.
At the top of the list is the manifest inadequacy of its proposed ‘two-pillar solution’ to the problem. The first pillar aims to reallocate the profits of multinational companies to the jurisdictions where consumers are located, thereby countering the practice of profit shifting which lies at the heart of corporate tax abuse, while the second pillar sets a minimum corporate tax rate of 15 percent so as to prevent the ‘race to the bottom’ engendered by dysfunctional tax competition. Pillar One is limited to a tiny fraction of the profits of the largest multinationals, however, while the rate of 15 percent set by Pillar Two is likely to act as a ceiling rather than a floor, thereby exacerbating rather than redressing the very problem it purports to solve. Independent analyses have demonstrated that the ‘two-pillar solution’ would have little impact in real terms, while what benefits might flow from the deal would accrue almost entirely to the Global North.
The insufficiency of its proposed solution to international tax abuse stems from the failure to meaningfully incorporate the voices of Global South nations into the negotiating process. While the ‘Inclusive Framework’ mechanism was established in 2016, ostensibly to facilitate the participation of non-OECD members in the ‘Base Erosion and Profit Shifting’ initiative, proposals brought forward by the G24 in representation of developing nations were ignored in favour of an agreement negotiated bilaterally by the United States and France. It was against this backdrop that the Africa Group opted to table Resolution 78/230 for the commencement of talks on a more inclusive process at the UN.
Failures of inclusivity and effectiveness are not the only areas when the OECD has come up short, however. The existing regime of international taxation, which makes crossborder tax abuse relatively straightforward, was put in place as the major European empires were in decline and was designed to protect the economic interests of former colonial powers. As a result it has deeply racialised impacts, systematically constraining the fiscal space of majority non-white nations of the Global South and, in turn, their ability to fund fundamental public services. Moreover, despite the fact that the OECD counts most of the world’s most nefarious tax havens among its members, the only country it has targeted for sanctions on the basis of tax haven policies is the tiny African state of Liberia.
Unfortunately, this failure of accountability coheres with a pattern of conduct by the organisation in recent years, which has also seen repeated controversies over shortcomings in adhering to professional standards. Perhaps most notably, as the Africa Group’s initiative to pursue more inclusive negotiations at the UN gained traction, the OECD took the unprecedented step of writing to various of its member states’ ambassadors questioning the fitness of the UN to lead such talks and calling on them to block the proposals.
Several of the OECD’s leading figures have meanwhile been mired in controversies over questions of autonomy and independence. In 2022 the former head of the OECD’s Centre for Tax Policy and Administration, Pascal Saint-Amans, departed the organisation and immediately took up a position with lobbying firm Brunswick Group. During her time with KPMG, current head of tax policy Manal Corwin meanwhile co-authored a tax planning proposal for Microsoft that would lead to a major tax abuse scandal, while Secretary General Mathias Cormann has likewise faced controversy over allegations he profited from secretive dealings with Luke Sayers, who was head of Price Waterhouse Coopers Australia during the TaxLeaks scandal.
In a world of multiple enmeshed crises, from climate change and runaway inequality to the cost of living and recovery from the Coronavirus pandemic, the continued syphoning of revenue away from government coffers represents an urgent human rights concern. Modelling by the Government Revenue and Development Estimations initiative at the Universities of St Andrews and Leicester demonstrates that, were it not for the revenue lost to crossborder tax abuse each year:
15 million people would have their right to basic water.
32 million their right to basic sanitation.
2 million additional children would attend school.
101 additional children would survive every day: 36,900 each year.
11 additional mothers would not die during childbirth: 3,999 each year.
It is for the reasons set out in this briefing that the move to shift negotiations on international tax cooperation away from the OECD and to the more inclusive forum of the UN is so critically important. The most ubiquitous counterargument deployed by those nations that would seek to maintain the status quo is that the UN process would risk duplicating efforts at the OECD. While the latter organisation undoubtedly has valuable technical expertise and experience to offer, the United Nations is the only forum that can provide the legitimacy, inclusivity, transparency, and accountability that is a precondition to the just and comprehensive reforms that are so badly needed, however. The UN can and must provide a radically different process and outcome to that which has unfolded at the Organisation for Economic Cooperation and Development.
Litany of failure: the OECD’s stewardship of international taxation was produced by Tax Justice Network in collaboration with the Center for Economic and Social Rights, Centro de Estudios Legales y Sociales (CELS), the Economic Policy Working Group at ESCR-Net, the Global Network of Movement Lawyers at Movement Law Lab, the Government Revenue and Development Estimations project (University of St Andrews/University of Leicester), Minority Rights Group, Tax Justice Network-Africa, and Steven Dean, Professor of Law, Boston University School of Law.
Africa has contributed the least to global warming, yet millions of African people are facing the most severe impacts of the climate crisis. To combat these challenges – stopping floodwaters, feeding starving people, and increasing the resilience of the public sector – African governments need more finance.
Yet Africa loses around $89 billion each year due to illicit financial flows, according to estimates. The enabling nations of tax abuse are the richest countries in the world. Ironically, they are also largely responsible for the climate crisis.
Climate finance and tax abuse
Over a decade ago, rich nations pledged an annual US$100 billion for climate finance – a promise that has been unfulfilled. And even if they honoured their promise, this amount falls far short of addressing the world’s escalating needs. By 2030, the economic cost of loss and damage in poorer countries could be as high as US$1.8 trillion.
Fixing the international tax system could help plug this gap. The Tax Justice Network’s State of Tax Justice 2023 estimates that the world loses US$480 billion per year to corporate tax abuse and wealth tax evasion. This is nearly five times more than the unmet climate finance commitment. This stark discrepancy is why Africa is leading the charge for a UN framework convention on tax. A majority of the world is advocating for international rules that should have been in place years ago, had it not been for the influence of the richest nations within the OECD.
Fostering continental conversations on tax and climate
In the same year, the Special Rapporteur on the promotion and protection of human rights in the context of climate change urged the UN General Assembly to “Explore legal options to close down tax havens as a means of freeing up taxation revenue for loss and damage”.
We are now sharing insights from two roundtables and studies conducted in Mozambique and Tanzania. Drawing from these collaborative efforts, we adopted a framework of tax justice principles to direct future advocacy for climate action. This is known as the ‘5Rs of tax justice’, which include:
raising revenue,
redistributing wealth to create a more equal society,
repricing through higher costs to discourage activities that infringe on the rights of others,
improving representation to strengthen the social contract between citizens and their elected officials, and
supporting reparations to address harms from historical injustices and colonial legacies.
The briefing, accompanied by a pocket guide, includes a series of probing questions for each of the principles to enhance collaboration between tax and climate justice movements. You can download the briefing and the pocket guide from Tax Justice Network Africa.
The CEDAW committee was formed in 1982, comprising 23 global experts in women’s issues. Its main role is to oversee progress for women in countries that are parties to the Convention on the Elimination of All Forms of Discrimination against Women. CEDAW monitors national measures to fulfil this commitment by reviewing reports state parties submit every four years. During the different sessions, the Committee engages in dialogue with government representatives and civil society organisations to provide feedback and seek additional information. It also issues recommendations on women’s rights-related issues, to which states parties should pay far more attention.
As part of its review process, the committee has previously requested Brazil to address “any disproportionately negative impact of austerity measures and tax policies on women” but the Brazilian government has failed to do so both in the State Party Report and its annex. Answering this silence, Tax Justice Network, INESC, Latindadd and Red de Justicia Fiscal para America Latina y el Caribe have worked together to shine a spotlight on the tax injustices directly affecting women’s rights in Brazil, particularly black women in low income backgrounds. Our joint submission elucidates why the Brazilian government needs to urgently address the issues of inequality and discrimination.
The group submitted a Shadow Report, with inputs from several feminist organisations in Brazil. We present a number of salient issues which provide indicators of gender inequality and human rights failures, for example, how women are likelier to work in the public sector and rely on crucial public services, but when public spending is cut, jobs disappear, salaries get capped, and essential services like childcare and healthcare vanish. This leaves women jobless or underemployed and burdened with even more unpaid care work. And on top of that, traditional gender roles at home and domestic violence make things worse. With little economic power or social support, these policies often keep women from accessing even their most basic rights.
Among the recommendations of the shadow report is the need to acknowledge the unequal impact of austerity measures on women, especially black women. We call for tax policies in Brazil to take into account gender and race issues, regulations that include subsidies for health and personal care products, and the implementation of tax refunds for the poorest. Our report also suggests implementing measures to reduce the prevalence of tax incentives for multinational companies that generate socio-environmental damage, in order to repay the affected populations, mainly black and indigenous women.
In this week’s session, representatives from both Tax Justice Network and INESC will attend in-person to present the report and deliver its key recommendations to the CEDAW committee and government officials. We will use this opportunity to also discuss with, and learn from, feminist civil society organisations about how tax justice plays a crucial role in women’s lives. We expect the Committee to use the information we presented to question the Brazilian government about their actions on austerity and tax, and demand the country implement tax justice measures and guarantee women’s rights.
Unprecedented, historic negotiations took place from 26 April to 8 May at the United Nations headquarters in New York. For the first time, the 193 Member States began discussing the parameters that will guide the negotiation of a United Nations Convention on International Tax Cooperation (UNFCITC). Civil society and other stakeholders were also able to publicly contribute their views to the negotiations under UN rules of procedure, bringing the winds of genuine democracy to international tax negotiations that have up until now taken place behind closed doors in spaces such as the OECD (see the Civil Society Financing for Development Mechanism’s comprehensive compilation of resources on these negotiations).
This blog summarises what happened in the first session of negotiations (from April 26 to May 8) and raises some considerations for the key decisions that the Ad Hoc Committee will have to make in the remaining period of its mandate. A second session of negotiations will be held from 29 July to 16 August on the final draft of the parameters, before they go to a vote at the UN General Assembly near year-end.
Why are framework conventions so important? Because they are binding instruments that provide the basis for the creation of a system of governance and an international legal regime in a specific field. Their nature can be better understood if they are thought of as a global constitution that serves as the basis for creating more detailed binding rules —called protocols— that make up an international legal framework. As such, the discussion on the terms of reference of a UN framework convention on international tax cooperation is a golden opportunity to lay the foundations for an international tax framework that overcomes the structurally embedded, racialised inequalities in decision making power that the world has inherited from the imperial and colonial dynamics with which the current rules were decided (see top-level UN experts formal communication to the OECD on this matter).
Resolution 78/230 adopted in 2023 by the General Assembly mandated an Ad Hoc Committee to finalise the terms of reference (ToR) that will govern the negotiations of a UN framework convention on tax by August 2024. This is as important a task as the negotiation of the United Nations Framework Convention on Climate Change (UNFCCC) was, whose provisions have laid the foundation for international climate cooperation with significant implications for present and future generations. As happened with the framework convention on climate change, the defining of the parameters of the UN framework convention on tax will have significant implications for the scope, speed and timeliness of international cooperation on global tax for the decades to come, ultimately shaping how the costs and benefits of international tax policy play out for future generations (see our previous blog on why the world needs UN leadership on global tax policy).
So how did the negotiations go?
A show of tactics lacking good faith
It’s important to emphasise that it took a historic, overwhelming, global south led victory at the UN last year for these negotiations to take place at all. That victory came in the form of legally binding decision taken by the UN General Assembly to begin these negotiations, starting first this year with negotiations on the terms of reference and culminating next year with a framework convention. The scope and focus of the negotiations were also agreed as part of this binding decision. A landslide majority of countries – home to 80 per cent of the global population – voted in favour of the decision, outnumbering those against by more than 2 to 1.
With a legal mandate now established to negotiate and pursue the adoption of a framework convention on tax, and clear decisions on what these negotiations should entail, pushback from countries who voted against the decision was expected to reasonably focus on watering down the terms of reference and securing the weakest version possible of a framework convention. Shamefully, pushback from some countries during the negotiations went beyond what could be considered in good faith. Several tactics were employed by some countries to negotiate not the terms of reference but to attempt to reopen, undermine and disregard the binding legal decision agreed last year.
In his 2023 report, the UN Secretary General presented to the UN General Assembly, as he was requested to do by the assembly, three options for making international tax cooperation fully inclusive and more effective. He noted that if the option of a framework convention (as opposed to a standard convention or a non-binding framework) was adopted by member states, it “would outline the core tenets of future international tax cooperation, including the objectives, key principles governing the cooperation and the governance structure of the cooperation framework”. The report also clarified that framework conventions “may also include institutional provisions for creating a plenary forum for discussion between States that is endowed with the authority to adopt further normative instruments to which States could then become a party”.
With the adoption of Resolution 78/230, the General Assembly opted to initiate an intergovernmental process that should culminate with the adoption of a Framework Convention, and as such it gave a precise mandate to the Ad Hoc Committee to elaborate the terms of reference for such an instrument. This mandate is binding for the 125 Member States that voted in favour of Resolution 78/230, as well as for the 48 that voted against and the 9 that abstained (see the positions that countries adopted on the Tax Justice Policy Tracker and the voting records here).
While states may have diverse negotiating positions and legitimate concerns about the process, the first round of negotiations that just took place shows that some states are still betting on carrying over into this stage discussions on issues that have already been decided, and as such should not be taking place if states are negotiating in good faith.
Among these obstructionist tactics that hinder the fulfilment of the Ad Hoc Committee’s mandate, and against which member states and other actors in the process must be vigilant, were:
Disregarding or generating confusion about the clear mandate to move towards a Framework Convention. This ranges from positions that still speak of a preference for a non-binding framework to those that disregard the constitutive character of a Framework Convention by restricting its ability to pursue its own objectives. The recurring argument by the minority that voted against Resolution 78/230 that the Convention should not duplicate or be inconsistent with existing instruments, for example, ignores that a Framework Convention, aims to “establish an overall system of tax governance” (see Secretary General’s report, par. 55) and as such can redefine the substantive and procedural pillars of existing and future instruments.
Limiting the scope of the task ahead and of the Convention to be negotiated to the point of disregarding the mandate of the Ad Hoc Committee. Advocating for a minimalist Convention with objectives such as “gather countries to exchange effective practices on mobilising domestic resources” (see several EU submissions) instead of outlining the core tenets of international tax cooperation, is also another way of ignoring the constitutive character of a Framework Convention and thus pushing for the definition of parameters for the stage that are contrary to the mandate of the Ad Hoc Committee.
Denying the motivation or other provisions of the resolution that has given rise to the work of the Ad Hoc Committee. As recognised in the UN Secretary-General’s report “existing international and multilateral arrangements […] do not satisfy the main elements for fully inclusive and more effective international tax cooperation”. Resolution 78/230 stated that an intergovernmental process at the United Nations for tax norm shaping and rule-setting would “leverage existing strengths and address gaps and weaknesses in current international tax cooperation efforts and arrangements”. While the Resolution mentions that this should be done “with full consideration of existing multilateral and institutional arrangements”, it also recognises that “inclusive and effective participation in international tax cooperation implies that procedures should take into account the different needs priorities and capacity of all countries to meaningfully contribute to the norm-setting processes, without undue restrictions”.
A corollary of this is that if Resolution 78/230 is motivated by the importance and timeliness of strengthening international tax cooperation to make it fully inclusive and more effective, both in procedural and substantive terms, then being faithful to that mandate implies overcoming the problem of the lack of both full inclusiveness and effectiveness of existing instruments identified by the Secretary-General’s report. In this vein, refusing to reform and reconsider existing rules on the grounds of avoiding duplication and complementarity, when they fail to meet the values put forward by the General Assembly, is to deny the motivation behind the mandate given to the Ad Hoc Committee.
Insist on changing well-established decision-making rules. All procedural provisions must be based on compatibility with the rules that are specific to the spaces where discussions take place. It is important to distinguish three distinct stages: 1) the Ad Hoc Committee’s decision-making rules for drafting the terms of reference (ongoing), 2) the Ad Hoc Committee’s decision-making rules for negotiating the Convention, and 3) the decision-making rules of the Framework Convention itself. In the first two cases, since the task will be performed by subsidiary bodies of the General Assembly, the established practice is that while consensus is sought, simple majority rule is not ruled out. A minority of states have argued that established practice should not apply when it comes to the Ad Hoc Committee’s decision making due to the alleged exceptionality of the nature of tax matters. Instead, they argued that decisions can only made on a consensus basis. The arguments for alleged exceptionality have not been convincing and either way would not be sufficient reason to modify the established practice in these bodies. The established practice is intended to ensure timely decision-making and to prevent a minority of states from obstructing progress by wielding veto power.
Restrict the participation of other stakeholders and limit their meaningful contributions to the process. At the first meeting of this negotiating session there was an incident that involved a lengthy discussion over Turkey’s objection to the accreditation of three civil society organisations. Fortunately, member states did not accept this objection and all organisations were accredited. A few days later, and less restrictive in nature, France requested that civil society organisations be heard only after all member states had spoken, if time allows. Although these are two very different actions, the two episodes reinforce the importance of all member states being on the same page in terms of valuing the opportunity that the UN rules of procedure offer to deliberate in a more informed manner with the input that civil society and other actors can bring to the process. The limited and precious time the Committee has for fulfilling its mandate should focus on using the input of all actors to jointly achieve the best outcome rather than on time-consuming discussions to restrict the existing participation mechanisms.
These tactics, coupled with silence as a strategy by the countries who voted against the resolution last year — which made the meetings particularly short during the last week of negotiations — led countries such as Nigeria to argue in its closing remarks on 8 May that good faith in negotiation must not only be preached but put into practice by all countries.
Country blocs around the main procedural and substantive discussions
Acknowledging the nature of the Ad Hoc Committee’s mandate by all countries should facilitate the task ahead: finalising the terms of reference in the indicated timeframe. What is the balance after the first session and what can we expect from the discussions to come?
Different views on the type of framework convention, its objectives and principles
The first days of deliberations focused on more general issues on what kind of parameters the terms of reference should set. That discussion showed stark differences in the type of framework convention that states are advocating for and varied views on what its general provisions should be. These different views of the type of convention desired, and on what the objectives of the framework convention should be, were also evident in the widely varying proposals countries submitted in writing ahead of the session.
During the session, the positions on the type of parameters that the terms of reference should set were divided into two main blocs. A first group of countries – mainly those that voted against the resolution adopted last year – argued that the terms of reference should give very general guidelines and focus on the procedural aspects for drafting the framework convention – without prematurely addressing anything that could prejudge its content. A second group comprised of global south countries showed stronger support for an initial outline for the terms of reference and for an annex with the possible structural elements of the framework convention, both prepared by the Ad Hoc Committee’s Secretariat based on the inputs States submitted to the process (see images below). They later suggested the terms of reference should have a broad-based approach according to which all issues should be up for discussion, and that the terms of reference should include some substantive scoping along the lines of the draft outline of the elements of the framework convention proposed by the Secretariat.
Despite differences over the emphasis that the terms of reference should have, states adopted a working agenda that over several days addressed an exploration of substantive points that could be included as high-level commitments of the framework convention.
The issues that countries want the framework convention to address
The exploration of the issues identified an expanded but not exhaustive list of issues that the terms of reference should contain as a guide for the negotiation of the framework convention. States expressed different positions on the inclusion of these issues. Richer OECD countries, including several vocal EU countries, noted that the framework convention should focus on less controversial issues and not duplicate efforts with other fora (implicitly and at times explicitly, the OECD). Global South countries (including some OECD members) generally argued for the need to include all relevant issues, even if they had been addressed by other fora. It is the Tax Justice Network’s view that in order to incorporate the perspectives of all countries, an inclusive framework convention on tax should not exclude any of the issues discussed, and particularly those that lower-income states consider to be priorities.
Before reviewing states’ positions on specific issues, two more cross-cutting observations should be made. The first is about the language used. While states use similar terms such as “domestic resource mobilisation”, “capacity building” or talk about their commitments to “fully inclusive and more effective tax cooperation”, the scope of these terms can be very different. For example, for Global South countries it is key that domestic resource mobilisation is understood to include combating illicit financial flows, while for richer countries it is often associated with a capacity building agenda to enforce existing standards and improve the collection of specific taxes in lower income countries.
To resolve these differences, we believe it is necessary to build on the most comprehensive definitions adopted in the most universally accepted fora. This can help overcome discussions in which states should avoid becoming embroiled. For example, in the discussion on the issues that should be addressed as part of the simultaneous development of early protocols, the United States raised that the term “tax-related illicit financial flows” was ambiguous, and noted its concern that certain tax avoidance practices might not be considered illegal in certain countries and as such should not fall under that definition. This objection was raised despite the fact that UN’s formal statistical definition already includes cross border tax abuse by both multinational companies, through profit shifting, and wealthy individuals hiding assets and income streams offshore whether illegal or not. Considering such established definitions, therefore, there should be no doubt as to the extent to which some terms should be interpreted. Furthermore, the whole purpose of covering “tax-related illicit financial flows” is to develop rules that are less prone to aggressive tax avoidance to the detriment of global south countries. As such, whether these practices are legal in the United States or in other high-income countries, is irrelevant.
A second observation has to do with the information used for resolving controversies in the negotiations. If one starts from different premises or a different diagnosis of the problems of the current tax architecture, states may entrench themselves in rhetorical positions that do not address what other countries are calling for. For example, African Group countries have insisted that there are structural problems with the standards decided in other fora such as the OECD because these standards fail to consider the realities of African countries and because they were decided in a forum without meaningful and equal participation — facts on which ample evidence can be provided. In contrast, richer countries, and in particular OECD countries, repeatedly cite the risks of duplicating what already exists, including these problematic standards, thereby ignoring objections to the legitimacy and effectiveness of existing instruments without providing any evidence base to address the concerns of other countries. The search for a common understanding implies approaching the process in a way that genuinely addresses the concerns of other parties.
With these two observations shared, we now provide summaries of the positions that were expressed on specific issues.
Domestic resource mobilisation and capacity building
A first discussion was on the scope of the concept of domestic resource mobilisation (DRM). In written submissions the term was mostly used by countries from the global north, as the following table shows.
During the sessions, there were two main positions on this issue (see statements on the matter here). A first group of countries argued that domestic resource mobilisation should be the priority issue to be addressed by the framework convention, with an emphasis on capacity building in lower income countries. A second group of countries pointed out that domestic resource mobilisation must be understood beyond capacity building measures and include issues of fair allocation of taxing rights and progressivity of tax systems. Hence, according to the second group, domestic resource mobilisation and capacity building should be addressed separately (recognising the importance of capacity building under an approach that addresses the needs of Global South countries). The chart below summarises how positions were aligned during the session.
The Chair concluded this agenda item by acknowledging that domestic resource mobilisation would need to be understood as having at least two components: one related to capacity building and the other including fair allocation of taxing rights and broader issues.
Effective taxation of high-net-worth individuals, including wealth taxation
Several states raised demands in their written submissions in relation to the inclusion of taxation of high-net-worth individuals, as shown in the table below.
During the session, there was a broad agreement on the importance of this issue for combating inequality and achieving other aims, but positions on how to include it in the framework convention varied. On the one hand, Brazil stressed that it considered this to be a crucial issue, for which it had made a proposal in the context of the country’s G-20 presidency. Brazil pointed out that the United Nations would be the most inclusive forum to discuss this issue. Spain and France indicated their support for Brazil’s proposal to the G-20 and suggested that the modalities for inclusion in the framework convention could be defined at a later stage. Colombia, Morocco, Belgium and Austria were more in favour of referring to the taxation of very high-net-worth individuals as a high-level commitment under the framework convention.
A second bloc of countries noted that the taxation of wealth was an issue of domestic tax policy to be decided by each country individually. But these countries were still open to considering options for including it as a high-level commitment, although some more open than others. These countries insisted on the need for a flexible approach that recognises the diverse circumstances of each country. Interventions from Japan, Canada, China, Germany and Sweden fell within this view. The United States, the United Kingdom and Korea more strongly emphasised that this was a domestic taxation issue and were more sceptical about its inclusion in the framework convention. However, they did not raise insurmountable objections in principle, and Korea and the United Kingdom indicated that they were open to considering it. Mauritius and the Bahamas raised some technical doubts about design of wealth taxes and how to include it in the framework convention.
A third bloc argued that the issue was indeed very important but suggested including it either under the high-level commitment on domestic resource mobilisation (Nigeria, Jamaica, Singapore, Chile), the high-level commitment on combating illicit financial flows (India, Kenya) or under a new high-level commitment on combating inequalities (Japan).
Given that there was broad consensus on the importance of the issue, the Chair noted it should be included in the negotiation, although the specific modalities would have to be defined at a later stage.
Making sure tax measures contribute to addressing environmental challenges
On this issue, there was broad agreement on its importance and urgency and no objections to its inclusion were heard from any member state (except a call for caution from Korea).
There were different emphases on the measures that could be considered. Argentina, India, Mauritius, Bahamas and Kenya highlighted the principle of shared but differentiated responsibilities. The latter two argued that careful consideration should be given to the way this issue is addressed with a view to avoid restricting lower income countries’ policy space to exploit their natural resources.
Singapore, South Africa and Kenya focused more on the issue of carbon taxes, while Japan, France and Sri Lanka spoke of a wider range of instruments. Colombia raised the issue in connection with the need to mobilise more resources and fill the climate finance gap.
Spain, Norway, Austria, Italy and France spoke about the importance of the issue, and France mentioned the joint initiative they launched with Kenya on the Taskforce on International Taxation and Climate as a benchmark that could help the UN to give greater political relevance to this issue.
Equitable taxation of multinational corporations
One of the most controversial moments of the first round of negotiations occurred on the morning of 1 May. The agenda item to be addressed was the inclusion of the issue of equitable taxation of multinational corporations as a high-level commitment. The positions of the countries were divided into two blocs. A minority bloc expressed concern that the inclusion of this issue would erode the progress made in other fora, and particularly regarding the two-pillar agenda of the OECD’s Inclusive Framework. They insisted on the alleged risks of “duplication” and argued that any discussion of these issues would have to be consistent with ongoing work in the OECD framework.
A second bloc, representing a majority of countries, advocated for comprehensive inclusion of the issue as part of the high-level commitments. Within this group, some pointed out that a forum such as the OECD’s Inclusive Framework could be considered neither transparent, nor equitable, nor inclusive, and as such it was a distortion to say that all countries had already reached agreement in this area in reference to the two-pillar agenda. The expression “140 is not 193”, referring to the number of jurisdictions that are part of the Inclusive Framework as opposed to the number of UN Member States, was heard on several occasions. They also pointed out that the Inclusive Framework was hardly a forum in which its member states could participate on an equal footing. It was also raised that the risk of fragmentation would arise from not including this issue as part of the framework convention on tax. Other states argued that including this issue would not lead to the erosion of work already done in this area but rather consolidate that work.
In his closing remarks on this agenda item, the Chair acknowledged that there are different views on the matter. He acknowledged that a group of countries were concerned with duplication but as this concern connected more with how the work would be done rather than about whether it should be added or not, he concluded the corporate taxation issues will be included to be discussed as high-level commitment in the terms of reference.
Additional topics that can be included as high-level commitments
As part of the agenda, member states suggested additional issues to include as high-level commitments in the terms of reference. These included:
Indirect taxation to contribute to domestic resource mobilisation
Institutional capacity of revenue administration
Assistance in revenue collection
Country by country reporting (the Tax Justice Network intervened on this matter)
Taxation of extractive industries
High-level commitment on fairness
Dispute prevention and resolution mechanisms (a presentation by the Secretariat was made on this)
Certainty, equality and predictability as high-level commitments.
Eradicate economic imbalances between nations
The Tax Justice Network proposed the inclusion of measures related to the ABC of tax transparency, including the proposal to create a Global Assets Register and a Centre for Monitoring Taxing Rights.
“Protocols to the framework convention could provide additional, “regulatory” aspects, with more detailed commitments on particular topics, giving countries the ability to opt-in and opt-out on the basis of their priorities and capacities. If there is sufficient agreement on certain action items, some of these protocols could be negotiated at the same time as the framework convention. This might include, for example, a protocol on measures to address the problem of illicit financial flows”.
In addition, Resolution 78/230 required the intergovernmental committee, in elaborating the draft terms of reference for a framework convention “to consider simultaneously developing early protocols, while elaborating the framework convention, on specific priority issues, such as measures against tax – related illicit financial flows and the taxation of income derived from the provision of cross-border services in an increasingly digitalized and globalized economy”.
With this framework for discussion, negotiations on the 2nd and 3rd of May focused on addressing the issue of the simultaneous development of early protocols to the negotiation of the framework convention. Countries came to the session with various proposals on the issue of protocols in their written submissions. During the session on 2 May, two main blocs emerged. A first bloc proposed a sequential approach: first the framework convention, then protocols. A second bloc proposed to develop simultaneous protocols on urgent issues to respond to the needs of member states, even if they were controversial. An intermediate proposal came from the United Kingdom delegation to combine simultaneous and sequential work. The Chair summarised the proposal with the chart below.
This was followed by a discussion on the ambition of the proposed timeline, in which the African Union, India, Chile, China and others raised their support for the proposed approach, while other countries such as Sweden, Germany and Austria raised that there were still too many unknowns to make an informed decision. Argentina, Switzerland and the United Arab Emirates raised doubts as to whether simultaneity was feasible in terms of the resources that needed to be allocated. The conversation on the proposed timeline was followed by a presentation by the Secretariat on dispute prevention and resolution that some countries welcomed for providing clarity in terms of how the Framework-Protocol approach might operate.
On 3 May, the session started with a discussion of possible issues that early simultaneous protocols could address. Global south countries led with strong interventions aligned on the need to have simultaneous early protocols, with some range of issues discussed, but mainly mentioning the topics of tax-related illicit financial flows, information exchange, and taxation of cross-border services. There was some noteworthy pickup of civil society demands. For instance, India called for progress in tackling illicit financial flows by means of beneficial ownership and legal ownership registration, and Brazil suggested considering public country by country reporting.
This was countered by many OECD countries with a strong pushback against simultaneous early protocols, justified by resource constraints for parallel negotiations and the resulting need to prioritise, and by the desire to better understand how the framework convention would work and how everything would fit together,etc. In this context, controversies emerged over the understanding of some terms, including the definition of illicit financial flows.
The US took the floor and poured a bucket of cold water on the negotiations, speaking directly against three of the most frequently mentioned issues for consideration for early simultaneous protocols: tax-related illicit financial flows, information exchange and the taxation of cross-border services. The US specified that the term illicit financial flows should be interpreted to apply to criminal proceeds not only from tax crimes, but also from corruption and organised crime, and remove from scope tax avoidance which may not be illegal but “lawful” (here is why we beg to differ).
On exchange of information, the US expressed concerns that the existing international standard may be duplicated, in conflict with or eroded by any action by the UN framework convention on international tax cooperation in this area. Specifically, the US defended the standard of “foreseeable relevance” of requested information, which is the threshold for a country to exchange tax information under bilateral tax treaties and the Convention on Administrative Assistance in Tax Matters. It’s worth keeping in mind here, however, that neither the overwhelming majority of UN members nor the overwhelming majority of Global Forum members had any say in designing this standard. The standard has proven to be very cumbersome to adhere to in lower income countries, drastically reducing the effectiveness of the whole exchange of information regime in the global south.
Since the US does not participate many of the international standards it tries to defend (e.g. the US has not signed the Amended Convention on Administrative Assistance on Tax Matters; it also does not participate in the automatic exchange of financial account information under the Common Reporting Standard for Automatic Information Exchange; and often the country fails to live up to promised reciprocity under its own system of obtaining foreign account information, known as ‘FATCA’.), the US’ statement is a remarkable feat in hypocrisy.
With the US not walking the talk on tax information exchange, and oblivious to the democratic deficit in bringing about a standard for information exchange that is largely ineffective especially for lower income countries (as Tax Justice Network has explained in this briefing), designing better rules on global exchange of information can hardly be seen as an erosion of current standards. The ineffectiveness of the current standards was highlighted by Senegal by mentioning and acknowledging that information exchange is already happening, yet then emphasising how it would need to be improved for it to work for Senegal and similarly situated countries. Requests for information exchange would for example often not be answered, so at the UN, there should be a binding obligation to respond to requests with the requested data or with a valid reason why the data was not obtainable.
The discussion continued between a bloc of Global South countries arguing for the urgency of early action and prioritising the most pressing issues for resource mobilisation, and a group of higher income countries continuing to argue for the desirability of the sequential approach and the need for further analysis. Korea and Norway suggested that a Commission of International Organisations working on the Platform for collaboration be invited to provide further analysis on specific issues. Nigeria, on behalf of the African Union, made a compelling case to explain that existing rules are not catering to the needs of all countries and, therefore, urgent action is required in key areas that early protocols should address for mobilising resources to tackle poverty and other pressing challenges.
The final meeting of the first week closed with a recap by the Chair on the issues raised by delegations as priority issues for the development of early simultaneous protocols:
Cross-border services
Illicit financial flows
Digital economy
Dispute resolution
Taxation of high-net-worth individuals
Environmental and climate challenges
Exchange of information
Tax incentives
In line with the joint submission of the Global Alliance for Tax Justice and the CSO Financing for Development Mechanism that the Tax Justice Network endorsed, we believe that any elements to be developed by protocols should be covered by strong provisions in the negotiation of the framework convention itself. In our own written submission, and in line with what has been raised by several countries in the global south, the Tax Justice Network believes that an early protocol on illicit financial flows should be part of the list of protocols to be prioritised, incorporating the ABC of tax transparency – i.e. automatic exchange of information, beneficial ownership transparency and (public) country by country reporting – and the creation of a Centre for Monitoring Taxing Rights. Whether negotiated simultaneously with the framework convention or under other arrangements, these elements, as well as others that countries may wish to develop further through protocols, should be included as part of the core content of the framework convention. Capacity issues need to be carefully considered by countries in a simultaneous negotiation of early protocols from a strategic standpoint, but far from being a zero-sum game many of the bottlenecks in the more general discussions could be resolved by parallel technical negotiations on more specific issues that early protocols can address.
Roadmap for second session, preparatory work and timeline
The second week of negotiations proceeded at a slower pace, with several countries refusing to make additional interventions on substantive or procedural issues in the absence of a zero draft that captured the earlier discussions. In this context, the final days focused on reaching agreement on the way forward, as summarised in the timeline below (prepared by our partners at the Center for Economic and Social Rights).
This ambitious roadmap implies several challenges for the different actors involved in the process. For UN member states, it will involve preparations for the decisive negotiations between July and August, which given the events of the first session are expected to be very tough and complex. For countries in the global south, the stakes are measured in terms of the resources that states lose every day to respond to the climate and other interrelated crises, and to build schools, hospitals, sustainable infrastructure and to mobilise the resources with which the realisation of people’s rights can be financed. For high-income countries that until now have been in the driver seat of global tax governance, it is a simple matter of accepting that international tax norms need global support, a fair distribution of benefits and a special reckoning of the needs, priorities and capacities of global south countries. But also, a matter of recognising that universally accepted rules that correct the flaws in the current tax architecture are beneficial for all countries. Such highly needed rules might contribute to put an end to the astronomic losses that richer countries suffer from tax abuses to the detriment of their own population (which are greater in absolute terms than those of lower income countries).
Achieving a shared understanding to focus everyone’s energies on agreeing terms of reference that enable the negotiation of an ambitious convention is critical for the process. However, discussions are tough, and the negotiation issues are sensitive. Continued leadership, unity and perseverance by Global South countries – the kind that brought us to these negotiations in the first place – will be required to see this process out in a successful way.
Evidently, it will be a major challenge for countries to achieve a successful negotiation in the short time ahead. For other stakeholders involved, ranging from the Secretariat facilitating the discussions to civil society observing the process, it will therefore be key to assist countries in drawing the right conclusions to make consensus achievable. As such, the Tax Justice Network will continue to provide tools and analysis to support the negotiations, and to collaborate with partners within the tax justice movement and beyond so that the world seizes this historic opportunity for change.
Beneficial ownership transparency is a crucial tool to fight illicit financial flows. It involves identifying the real individuals who ultimately own, control or benefit from legal vehicles such as companies and trusts. Although this sounds rather simple, getting it right is a whole different story. Standards by international organisations (watered down by powerful countries) tend to be quite weak and unambitious. Even then, countries fail to meet these low standards as they lack understanding, resources or interest (or all of the above).
Against this gloomy context, a technical note published by the IMF in January 2024 on “Resolving Opaque Bank Ownership and Related-Party Exposures” is a much welcomed breath of fresh air. It is also an encouraging sign of what the IMF’s new AML strategy is capable of. The technical note deals with an issue very dear to the Tax Justice Network on who “controls the controllers”. Financial institutions are frequently bestowed with obligations to prevent money laundering, determine the tax residence of account holders, withhold account holders’ taxes or report their banking information for automatic exchange purposes. However, this system which relies on the private sector to self-supervise and to assist competent authorities often results in awful consequences (as can be expected of any system with the wrong incentives). For instance, there have been several cases of banks turning out to be complicit, or even initiators, of the wrongdoing they are meant to guard against. The Swiss leaks is one prominent example.
The IMF technical note is not just interesting for its subject matter. It also made us here at the Tax Justice Network realise that we need to update our paper on uses and purposes of beneficial ownership data to include another very important reason to provide public access to beneficial ownership information: bank stability and bank failure. Lack of beneficial ownership transparency can have an impact on the (illegal) transactions carried out by the bank’s owners, which in turn can have serious financial stability and macroeconomics effects for a country. As the technical note describes:
“If not managed properly, related-party transactions can quickly become a source of bank weakness and a threat to financial stability…Most of these [bank] failures (16 out of 22) were largely attributed to extensive abuses by beneficial owners of bank resources in a manner affecting viability….In Indonesia, excessive related-party exposures were one of the key contributors to the country’s banking crisis in the late 1990s… the channeling of funds to finance beneficial owners was a common practice” (pp. 22 and 34).
Some could argue that if public access to beneficial ownership information is needed to prevent bank failures, then it should only apply to the banking sector rather than generally. However, the same counter-argument (that we’ve repeated many times) applies: if you don’t cover absolutely all companies, then secrecy (for corruption, fraud or bank failure) will move up the chain, to the contractor or supplier. Indeed, the same happens with banks where secrecy is not present in the bank itself, but in the secretive entities engaging in (undisclosed) related-party transactions:
“[…] the experience of some jurisdictions with material related-party problems shows that although the banks’ immediate related parties, such as managers or controlling shareholders, were mostly known to the authorities, numerous borrowing entities that were de facto connected to these related parties were not reported as such.” (P. 26)
Apart from offering us a new purpose and case for public access to beneficial ownership, the technical note offers several recommendations that are completely aligned with the Tax Justice Network’s position on beneficial ownership transparency. The following table presents a summary of our papers and proposals compared to extracts from the technical note pointing to the same ideas.
The Tax Justice Network’s proposals compared to the IMF paper’s proposals
The Tax Justice Network
IMF technical note on banking ownership (extracts)
As proposed for instance by our roadmap to effective beneficial ownership transparency (REBOT), all countries should establish public access to beneficial ownership information. We have published a report addressing the privacy, data protection and human rights perspective in favour of public access to beneficial ownership information.
“It is good practice to require public disclosure of a bank’s beneficial owners.” (p. 9)
“Common characteristics of opaque ownership structures include (1) excessive layers of ownership (for example, chains of holding companies)… (2) owners’ residency in foreign jurisdictions… (3) complex usage of available legal persons and arrangements (for example, special purpose vehicles, trusts).” (p. 9)
“A common problem relates to narrow or unclear definitions of … “significant ownership,” or other relevant terms; for example, exclusively based on quantitative indicators such as ownership thresholds. Definitions may fail to capture voting rights being exercised without legal ownership (for example, under a collateral arrangement) or preferential voting rights (for example, veto rights).” (p.11)
Some of our policies in our roadmap focus on addressing complex ownership structures and incentivising compliance go way beyond international standards. These include proposals to reduce the number of allowed ownership layers, lowering (or eliminating) thresholds, prohibiting discretionary trusts, disallowing foreign entities based in secrecy jurisdictions from owning local assets or entities, and applying the “constitutive effect” so that registration is a pre-condition for having or exercising rights.
Additional legal amendments, beyond international standards, may need to be considered… examples of enhancements include (1) restricting the complexity of bank ownership, for example, by limiting the number of ownership layers; (2) lowering the threshold for direct and indirect “significant ownership,” to enable the supervisor to deal with opaque ownership structures and concerted actions that were designed to keep the relative share of individual shareholders just below preexisting regulatory thresholds… that full disclosure of beneficial ownership.… is a precondition for exercising their shareholder rights;… (6) explicitly empowering the supervisor to declare a specific ownership structure as “nontransparent” and, thus, in breach of licensing requirements; (7) explicitly stipulating in law that bank owners or shareholders from jurisdictions that are uncooperative for the purposes of prudential supervision, or are considered to have strategic AML/CFT deficiencies, do not meet suitability requirements” (p. 11 and 13)
Our roadmap together with our papers on trust registration around the world and abuses of offshore trusts describe the risks of trusts (especially discretionary trusts) and propose ways to disallow them or counter their harmful effects.Our roadmap and paper on why beneficial ownership registries aren’t working also recommend identifying those with a power of attorney as beneficial owners with control.One of our first papers on beneficial ownership, published back in 2016, proposed identifying the 10 or 20 biggest shareholders in cases where no individual passes the threshold to become a beneficial owner (instead of following the Financial Action Task Force’s requirement to identify a senior manager).
Box 3 on Ukraine’s indicators on non-transparent ownership:“* Trust: Presence of a discretionary trust in the ownership structures* Power of attorney: Issuance of power of attorney…* … For shareholder structures with more than 20 natural persons, the largest 20 individual shareholders were defined as ‘key participants.’” (p. 12)
Our paper Rethinking limited liability: beneficial ownership transparency to reform the liability system proposed ways to ensure beneficial owners or ultimate shareholders are held liable. This liability should also apply to any earnings that shareholders, beneficial owners or directors obtained from the company, even if they are no longer related to the entity by the time the liability arises (within some reasonable timeframe). In other words, if John as a shareholder got dividends worth $10 million from company A, then sold his shares to Mary and after a few months company A cannot repay its debt, then at least part of $10 million previously paid out to John should be used to repay current creditors, even if John is no longer a shareholder or beneficial owner. In essence, if there’s a cap in losses, there should be a cap in gains.
“The civil liability of beneficial owners and other related parties for a bank’s failure may be based on a combination of general and specific rules. The bank can pursue its claims from related parties on different legal grounds, for example, contract, tort, or unjust enrichment.” (p. 35)
Our roadmap as well as our paper on beneficial ownership verification proposes sophisticated checks to detect registered owners who are actually nominees serving as owners. These checks include checking whether the registered owner could have afforded acquiring their shares to begin with, based on their declared income or wealth.Likewise, our paper on complex ownership structures recommended reversing the cost equation. As things stand now, complexity is free for those who create it and costly for authorities and investigators who seek to identify the beneficial owner hiding behind the complicity – a task that often proves impossible. Our recommendation was to reverse this situation, and make it costly and burdensome (or even forbidden) to create complex ownership structures. This would be similar to how Dutch banks started charging higher fees to customers with complex ownership structures because of the extra costs the banks incurred when performing due diligence.
“verify that beneficial owners have no record of criminal activities or involvement in illicit activities or suspicious practices. It should also assess their financial soundness, that is, the sources of funds for the acquisition of bank shares… The financial soundness assessment is a key tool to identify potential “strawmen” (that is, nominal shareholders that lack financial strength and act in the interest of an undisclosed beneficial owner). In jurisdictions with legacy opaque shareholder structures of systemic proportions, this assessment may call for identified beneficial owners to submit audited financial statements, tax returns, bank account statements, independent personal asset valuations, and other documents.” (p. 16)
Our paper on beneficial ownership verification delves into the risks and challenges of verifying beneficial ownership information and proposes various methods for verifying that information and detecting red flags. One challenging example is detecting cases where trusts disguise distributions to beneficiaries (eg paying their tuition fees or credit card expenses) as if they were expenses belonging to the trust. The IMF paper proposes additional, very good ideas on how to detect undisclosed relationships between entities and how to identify nominees and shell companies.
“*Exclusivity: For example, no other financial institution unrelated to the bank is lending to the party, and the amount and type of loans do not justify it from an economic point of view.
*Economic dependency: For example, most of the party’s revenues come from the bank or its related parties …
*Common infrastructure: For example, common or very close business addresses (physical or virtual) with the bank and its related parties; common operational structural elements; common managers or staff; and common suppliers, service providers, or customers.
*Underwriting standards: For example, material disproportion between proceeds, tenor, and terms and conditions; legal form of transaction differs from their economic essence; and the terms and repayment conditions differ from the current market conditions.
(…)
*Indebtedness and creditworthiness: For example, at the onset, the loan is unlikely to be repaid as stipulated in the contract, given creditworthiness and available repayment sources; and credit rating below the minimum considered acceptable by the bank.
*Interest rates, fees, and prices: For example, interest rate and fees to be paid to the bank are substantially lower than for clients with similar economic and financial characteristics, and prices paid by the bank for assets or received services differ from market prices. (p. 27)*Loan transactions in the weeks prior to material capital injections (for example, those exceeding a certain percentage of total capital during the past five years) should also be reviewed to ensure that the injections have not been effectively funded by the bank itself.
*The sample should also include some transactions that do not directly involve credit exposures, for example, purchase and sale of financial instru¬ments and nonfinancial assets, acquisition of assets in lieu of loan repayment, and service contracts, such as for asset management, advice, and other major professional services (for example, information tech-nology development, database management, auditing, and loan workouts).” (p. 30)
Conclusion
This technical note is an excellent example of the role that the IMF can and should take to bring about real progress on beneficial ownership transparency. For instance, the IMF could start requesting major financial centres to publish beneficial ownership information of their banking sector. This would allow beneficial ownership transparency to move beyond the weak international standard set by the Financial Action Task Force. We hope to see more of this ambitious approach when the IMF engages with countries on capacity building and financing, and when the IMF give feedback on current international standards. In this regard, a protocol on beneficial ownership transparency to the UN Framework Convention on International Tax Cooperation (the UN Tax Convention) would also ensure more transparency for all countries.
Countries at the UN are currently negotiating the parameters of a UN framework convention on tax, which could deliver the biggest shake-up in history to the global tax system. The final parameters – aka the “terms of reference” – will be published in draft form in August, and voted on by the full General Assembly, likely in November.
We’ll be sharing rolling updates on this blog here over the coming months in the run-up to the UN vote on the terms of reference.
Countries voted by a landslide majority last year to begin negotiations on establishing a UN tax convention. The convention has been heralded as countries’ best chance to avoid losing nearly $5 trillion to tax havens over the next decade.
What makes a UN tax convention so game-changing isn’t just the changes it would make to existing global tax rules, but the way it would dramatically change how global tax rules are decided. For over 60 years, global tax rules have been decided behind closed doors at the OECD, a small club of rich countries whose members include some of the world’s most harmful tax havens. A UN tax convention would require global tax rules to be decided democratically and transparently at the UN, where all countries can be heard on global tax rules that affect us all.
26 April – 8 May: The committee will hold its First Session, where all countries will have an opportunity to inform the provisional work of the committee on the terms of reference.
29 July – 16 August: The committee will hold its Second Session, where all countries will have an opportunity to input and negotiate on the final draft of terms of reference before the terms go to a vote near year-end.
November/December TBD: The UN General Assembly will vote on whether to accept the terms of reference prepared by the committee for a UN framework convention on tax. If passed, countries will negotiate the content and meat of the framework convention in 2025, with a view to put the convention to a vote near year-end in 2025.
Positions raised at First Session of the Ad Hoc Committee, 26 April – 8 May 2024 Positions submitted in writing ahead of the First Session of the Ad Hoc Committee.
Transcripts of the First Session of the Ad Hoc Committee, 26 April – 8 May 2024
Please note that these transcripts are automatically generated by transcribing software and may contain errors.
The Tax Justice Network ran similar live rolling blogs in 2023 and 2022 on the previous stages of the UN process leading towards a UN framework convention on tax. The 2023 blog is available here. The 2022 blog is available here.
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🔴 – Live updates
Wed 27 Nov 2024
17:45pm GMT: Alex Cobham covers the live vote via Bluesky
Here’s the resolution on ‘Promotion of inclusive and effective international tax cooperation at the United Nations’, put forward by Nigeria on behalf of the Group of African States: undocs.org/A/C.2/79/L.8
Bizarre first contribution from Argentina, whose delegate explains the country has embarked on ‘a new model’ and therefore has marked a set of paragraphs in the text from which it disassociates itself, including the 2030 Agenda, SDGs, climate change(!), and introduces its own definition of gender…
Russia next, also supports the resolution and also disassociates itself from some paragraphs- in Russia’s case, those referencing the Pact for the Future
The Nigerian delegate now introduces the motion, summarising the path through agreement on the draft terms of reference by which the countries of the world have arrived at this point
“The Africa Group believes that achieving an equitable and inclusive framework (for tax) will benefit all… We must seize this moment to strengthen cooperation… Only together can we pave the way for a fairer and more sustainable future.”
Hungary, speaking for the EU, is raising a ‘technical clarification’. It’s not a good sign that Hungary is speaking – they and France are understood to be the main opposition to the resolution, within the EU.
The Nigerian delegate explains that the change was a technical one to address a redundancy in the text (a repetition of language on geographical scope)…
Hungary says that they are not fully satisfied, and that this change undermines consensus. (This seems petty…)
Nigeria’s delegate explains that OP2’s language reflects the consensus from the ad hoc committee, and that reopening this would undermine and delay the process. On OP5, the Africa Group believes that the organisational session of the negotiations in 2025 must determine decision-making rules.
UK delegation speaking to its abstention on OP5, and the importance of consensus – but note “the openness to progress”, opportunity to agree at the organisational session, and stresses its commitment to work with all partners. Interesting shift – might UK reverse its opposition on main vote?
US – a leader of the opposition – now speaks, to call a vote on the whole resolution. “We would have preferred to join consensus” but refuse because the text does not require full consensus. Ignoring the earlier discussion…
The Nigerian delegate emphasises that voting *against* the resolution would be a vote against multilateralism, and against the interests of developing countries in particular.
15:00pm GMT: Second Committee, 26th plenary meeting – General Assembly
Today, the UN General Assembly votes on the UN Tax Convention Terms of Reference.
13:00 pm : Sergio Chaparro-Hernandez update ahead of the todays vote at the UN on Adoption of the #UNTaxConvention Terms of Reference.
📢Today, the United Nations will take the final step to begin negotiations on the most important international tax treaty in history: the #UNTaxConvention 📃 What to expect from the vote today? What is the value of this process in the current international context? 🧵👇#VoteYespic.twitter.com/9xi9UPtOm3
— Tax Justice Network @TaxJusticeNet.bsky.social (@TaxJusticeNet) November 27, 2024
This year the Ad Hoc Committee worked on the drafts terms of reference that set the parameters for the negotiation of the #UNTaxConvention in the next three years. The vote at the Ad Hoc Committee showed opposition softened as only 8 countries (#TheHarmfulEight) voted against. pic.twitter.com/a0lCE6m7WT
— Tax Justice Network @TaxJusticeNet.bsky.social (@TaxJusticeNet) November 27, 2024
What to expect ahead of the vote? The South bloc (G77 countries) with a few exceptions will likely remain solid in its support to the process. The question is if rich countries will understand this is the best chance to reform international tax rules in the current context. pic.twitter.com/nVZpKwE6RO
— Tax Justice Network @TaxJusticeNet.bsky.social (@TaxJusticeNet) November 27, 2024
👁️Don’t miss our live blog tracking developments on the road to this critical UN vote towards a #UNTaxConvention. 📺Follow the vote in our live blog today at 10am (EST) 👇https://t.co/Q0TTNfGkKG🔴live-un-tax-negotiations/ @SergioChaparro8
— Tax Justice Network @TaxJusticeNet.bsky.social (@TaxJusticeNet) November 27, 2024
Fri 16 Aug 2024
9:45pm GMT+1:Countries ‘bash open’ door to historic tax reform at UN
Countries have just voted by a landslide majority to adopt an ambitious scoping document for a UN tax convention, after months of negotiation. The document1, referred to as the Terms of Reference, sets out ambitious parameters and a clear roadmap for the next stage of negotiations, to being next year, on a framework convention and early protocols. The parameters secured set a strong enough basis for countries to deliver the biggest shakeup in history to the broken tax system.
7:33pm GMT+1:The ICRICT commission’s statement calls on UN member states to vote YES on terms of reference
The Commissioners state:
“The vote today on the ToRs provides an historic opportunity to advance international tax cooperation in an inclusive and sustainable manner and we encourage Member States to vote YES to the draft as it stands.”
12:15pm GMT+1: Countries to vote today on ambitious scope for UN tax convention after months of negotiations
Economists, civil society organisations and campaigners from around the world are calling on countries to back the ambitious scoping document for a UN tax convention that emerged yesterday after months of negotiations at the UN. The document1, referred to as the Terms of Reference, sets out the principles and protocols that will inform the framework convention, and has retained enough of its original ambition to deliver the biggest shakeup in history to the broken global tax system, the Tax Justice Network says.
10:00am GMT+1: Tax Justice Minute: Sergio Chaparro-Hernandez wraps up the second week of the final negotiations.
Wed 7 Aug 2024
The second week of negotiations on terms of reference for the UN Tax Convention is in full swing. Having stormed through discussions on the objectives and preamble of the draft ToR, vying national interests are now on full display as countries debate the principles that will underpin the Convention.
Of critical importance to tax justice advocates is the incorporation of strong human rights language into the terms of reference. On Monday and Tuesday, an arduous debate ensued on the exact function and location of such language in the ToR. Broadly speaking, countries’ opinions were divided across three positions. Colombia and a number of other Latin American countries fought compellingly for human rights obligations to be included in the principles section the preamble. Embedding human rights standards in the operational part of the document as a principle means they can serve as one of the concrete guidelines of the work under the Convention besides other principles like ‘transparency’ or ‘the fair allocation of taxation rights’. Inserting human rights as a principle aims to ensure the Convention meaningfully advances the wellbeing of ordinary people in all countries. It would also require a specific focus on the needs of marginalised sectors, such as women, minority ethnic groups, persons with disabilities and other discriminated-against groups.
As things currently stand, the principles section of the ToR states that efforts to achieve the objectives of the Convention should “be fully aligned with international human rights law and States’ existing commitments under human rights conventions to respect, protect and fulfil all human rights for all people in all countries”.
Perhaps surprisingly, the position of including human rights as a principle was strongly and repeatedly opposed by the African countries and by India. As explained by the African Group, not including human rights as a principle does not equate to the continent dismissing human rights obligations. On the contrary, efforts to mobilise domestic resources to increase living standards and human rights adherence are the key priority for Africa. But in their view, this will be achieved by fair and equitable tax rules between countries. India agreed, but not without calling a cat a cat: if a general reference to human rights is adopted as a general principle, it could be used to block things like effective exchange of information.
The African and Indian position needs to be understood in relation to the third position, that taken by many of the countries in the Global North. Having voted against the process towards a UN convention on tax last year, these countries were quick to support the inclusion of a general human rights principle which – in their view – mostly serves to anchor the protection of taxpayer rights. After all, it is these individual human rights – the right to privacy, the right to property – which tend to be most enforceable (or most frequently enforced, at least).
As illustrated in recent jurisprudence by the European Court of Justice (see here and here), individual human rights like the right to privacy do not always align with progressive tax agendas. On the contrary, wealthy global North taxpayers aiming to stretch the scope of these rights in local courts may altogether hinder progress. Hence, the African and Indian skepticism and the grim realisation for all others involved that even a seemingly obvious reference to universal human rights – core values on which the UN forum is built – can be weaponised against a progressive agenda or, at least, is perceived by a large part of the Global South as entailing such risk.
As the debate over human rights rolled into Tuesday, perhaps the most eloquent contribution came from Mauritius, which spoke in favour of keeping strong human rights language in the principles and called on the gathered delegates to remember that, ultimately, the fulfilment of human rights is the whole reason the framework convention process was initiated. The very purpose of cooperating internationally on issues of taxation, he argued, was to raise revenue for human rights such as education and healthcare.
A series of Latin American states – including Brazil, Colombia, Chile, Costa Rica, Honduras, and Mexico – echoed this position over the course of the day.
A much-needed intervention from the Office of the High Commissioner for Human Rights aimed to clarify the role core human rights principles can and must play in delivering an effective and transformative Convention. The OHCHR representative reminded the gathered delegates that the Human Rights Council has underlined the centrality of just taxation for the realisation of all human rights, and reaffirmed that this same objective is one of the central purposes of the UN Charter. Placing human rights at the core of implementation of the Convention would, she argued, serve to reduce inequalities both within and between countries. Importantly, as some of the day’s argumentation had heard calls for ‘taxpayers’ rights’ – which often means privacy and with it financial secrecy – should not be given precedence over established human rights; instead the whole body of human rights must be considered holistically. The UN human rights system has developed effective standards to balance the trade-offs that can arise between different categories of human rights, and stands ready to support in this regard.
CESR’s Charlotte Inge explains why human rights must be in both the preamble and principles of the Terms of Reference for a Framework Convention on International Tax Cooperation
The Center for Economic and Social Rights also intervened, delivering an important clarification that while human rights are protected by an established canon of international law, ‘taxpayers’ rights’ do not have any such status and therefore their inclusion in the principles section would be problematic. In order to deliver the guiding framework that is needed, the principles underpinning the new convention should be anchored in international law that can provide clear interpretive guidance for implementation.
Closely linked to the push for strong human rights language, there was also concern that civil society voices were being sidelined as state interventions ran overtime, and that the critical issue of gender equality seemed to have slipped from country delegates’ minds. With this in mind, Monday’s only intervention from civil society centered on a call for the Beijing Declaration and Platform for Action – considered the key global policy document on gender equality and women’s empowerment – to be included in the list of international agreements framing the convention.
As to the worries expressed by the African countries and by India, these have remained largely unaddressed in the debates until now. One way to achieve progress here is to insert an explicit connection between ‘fair allocation of taxing rights’ and ‘the adherence to human rights’ as inseparable principles. From a tax justice perspective, alignment with human rights principles is key to ensure fair taxation within countries, and to underpin the ability to hold states accountable for extraterritorial damage. But if there is no corresponding principle of fairness between countries (fair allocation of taxing rights), there is a clear risk that the human rights alignment is (mainly) weaponised against fundamental reform of taxing rights that is central to overcoming the deliberately created global inequalities in their distribution. In other words: taxpayer rights in the Global North are important, but not to the extent that they can stifle and extinguish other principles and country commitments under the Convention.
Countries may therefore be well advised to merge the two principles so to keep the best of both worlds – general adherence to human rights and fair allocation of taxing rights – and rely on it as a single principle of utmost importance for all work under the new Convention.
Mon 5 Aug 2024
15:00pm GMT+1: Tax Justice Minute: Sergio Chaparro-Hernandez rounds up the first week of the final negotiations.
11:55am GMT+1: Sergio Chaparro-Hernandez explores our guide to the five main fallacies that rich OECD countries will likely use to try to derail progress in the UN tax talks
15:55pm GMT+1: Speakersaddress the Ad Hoc Committee to Draft Terms of Reference for a UN Framework Convention on International Tax Cooperation.
Sergio Chaparro makes key points on the need for the ABC of tax transparency: fully inclusive Automatic exchange of financial account information; for public registers of Beneficial ownership info; and for fully public Country by country reporting by multinationals. pic.twitter.com/HzwwABTxyC
— Alex Cobham @alexcobham.bsky.social (@alexcobham) August 2, 2024
21:00pm GMT+1: Insights from day 2: Liz Nelson recap
Day 2 of the final round of negotiations of the Terms of Reference for a UN tax convention in New York brought an early attack on hard fought language on human rights. Submissions from tax justice and human rights advocates had set out in their submissions to the Bureau (here and here) the importance of strengthening the draft terms of reference with clear language on human rights principles (See paragraph 9). The Office of the High Commissioner for Human Rights supplemented with their own submission.
The nature of the attack on the human rights text in paragraph 9 came, perhaps, from unexpected quarters, but has sounded the alarm and underlined that there are limitations to the depth of understanding of key principles that are necessary, and should, shape the UN Framework Convention on International Tax Cooperation. If indeed member states are committed wholeheartedly to address social and economic inequalities in and between countries by a root and branch reform of the international tax rules this cannot meaningfully happen without adherence to their duty bearer obligations.
Many of civil society working on human rights have worked quickly to provide the Secretariat to the Ad Hoc Committee with a reminder of the clear rationale and the legal framework for the inclusion of human rights in the Terms of Reference, as opposed to the quite different concept of taxpayer rights. The notes here prepared by civil society in New York (CESR, Dejusticia, GI -ESCR, Tax Justice Network and others) navigate through the arguments for human rights language:
12:30pm GMT+1: Social Europe article: Developing tax rules for a globalised world by Alex Cobham
Yesterday, a number of EU countries intervened in the UN tax convention negotiations, to argue that the convention should not ‘duplicate’ work of the OECD. But the UN convention is a massive opportunity for the EU and its people – and their negotiators should seize the chance.
16:00pm GMT+1: U.S. Treasury Secretary Janet Yellen opposes shifting global tax deal negotiations away from the Organisation for Economic Cooperation and Development to the United Nations.
Sergio Chaparro-Hernandez, Tax Justice Network: “The US has long been opposed, so while it is disappointing that Secretary Yellen would make such a public statement, it comes as no surprise. But with this confirmation that there will be no constructive engagement in the negotiations from the US, regardless of their presidential election results later this year, the focus is now on the stance of other OECD member countries, including the EU and UK. These are the countries which lose the greatest amounts to crossborder tax abuse due to the failures of the international tax rules. And these are also countries whose citizens consistently demand that their politicians make progress in this key area. We therefore hope to see the UK and EU signalling their willingness to support the Africa Group’s leadership on the UN convention, and pushing hard for an ambitious and progressive terms of reference for the full negotiations to follow.”
12:30pm GMT+1: New blog summarising the First Session negotiations
Our colleagues @SergioChaparro8 and @markusmeinzer have written a blog providing a jam-packed recap of what happened at the first round of UN tax negotiations. The blog breaks down negotiation tactics that were on display at the Ad Hoc Committee’s First Session, views and positions expressed by countries, emerging blocs and what lies ahead on the path towards a UN tax convention.
11:59am GMT+1: Database of country positions from First Session
We are also making publicly available a database we have compiled on what countries said they want from a UN tax convention during the First Session of the Ad Hoc Committee that recently ran from 26 April to 8 May.
11:10am GMT+1: Transcripts of First Session meeting
We are sharing here our automated transcripts of the Ad Hoc Committee’s First Session, which ran from 26 April to 8 May. Please note that the transcripts are automatically generated by transcribing software and so may contain errors. The automated transcripts include timestamps to help cross-check quotes in the transcripts against the recordings of the meetings on UN web TV, which we advise doing.
9:00am GMT+1: Markus Meinzer summarises yesterdays sessions
The negotiations for Terms of Reference of a #UnTaxConvention have focused today on two crucial procedural questions:
1. should early simultaneous protocols be negotiated?
2. what timeline for any protocols and the Framework Convention?
The morning session was characterised broadly by two different views, with many strong interventions from G77 consistently pointing out the need and feasibility of early simultaneous protocol negotiations, and many, but not all, OECD members rather arguing against this.
These two differing views may have surprised some observers, as it was OECD members rather than others who repeatedly cited bottlenecks in administrative capacity for simultaneous negotiations: the practical question of working in parallel on more things demands more resources.
The position by G77 & some few OECD members calling for negotiations of early simultaneous protocols may indicate their commitment & determination to bring in their technical tax negotiators January 2025. So how may they deal with capacity constraints for 2 parallel processes?
The obvious answer (the OECD may not like too much) is that tax policy negotiation resources could be freed up by…pausing…(for lack of a better word…) the stalling work over at the #InclusiveFramework. Perhaps until the USA might show us ratification of Pillar 1 and 2? And as we are at it, of the Common Reporting Standard?
The longer than usual break after the morning session indicates that this penny might be beginning to drop here & there… After the break, a compromise proposal, initiated by the UK, for overlapping negotiation timelines, but not full simultaneity, was elaborated on by the Chair.
Then the Chair projected this chart (as shown above) as an indicative illustration of the potential compromise timelines. It indicates the completion of the full framework convention within 18 months, and then the completion of early “semi-simultaneous” protocols, 6 months thereafter.
Well, if that is the case, expecting the ToR will be voted in the UN General Assembly this fall, we are in a scenario where the negotiations could start in January 2025 indeed.
The beauty of democratic negotiations at the United Nations at work.
PS: Those interested in the case why corporate taxation and public country by country reporting by multinational companies should be a high level commitment as an area to be within jurisdiction of the Framework Convention, watch my intervention yesterday at the Ad Hoc Committee: https://youtu.be/XNlEUY4Pr7M
Wed 1 May 2024
12:20pm GMT+1: Markus Meinzer, delivering a statement on behalf of the Tax Justice Network on public Country by country reporting
The Tax Justice Network aligns with the remarks made by the Global Alliance for Tax Justice. Esteemed delegates, in this intervention, we would like to advocate for including Country by Country Reporting and corporate taxation issues more broadly in the Terms of Reference of the Framework Convention; and for inclusion of the establishment of a Global Asset Registry (GAR), as well as of a Centre for the Monitoring of Taxing Rights (CMTR) to monitor progress.
I found encouraging that today, many country delegates have expressed their desire to do more to ensure that large multinational enterprises pay their fair share of tax.
In this regard, the importance of the relationship between corporate taxation, that has been discussed this morning, and the ABC of tax transparency that has been discussed yesterday, cannot be emphasized enough. Why is that?
One objective of tax reform processes initiated 2013 by the G20 has been to align the declaration of profits of multinational enterprises with their economic activity.
Country by country reporting – the C of the ABC – has been proposed as one tool to not only hold accountable multinational enterprises, but also to measure the progress towards this ambition of states, and it has been widely implemented in form of BEPS Action 13.
While CbCR has been originally devised as a public financial reporting standard whose predecessors are dating back to the 1970s and the United Nations, CbCR has been however severely truncated during the OECD BEPS negotiations.
The first truncation of this tool happened as tax secrecy was declared to cover this data.
In order to access the data, a complex system of automatic information exchange was established that leaves most lower income countries out of the exchange mechanism.
Esteemed delegates, the result of this system is a further exacerbation, not a reduction, of information asymmetries between higher income and lower income countries – information asymmetries that everyone in this room knows do translate into inequalities of power and ultimately taxing rights.
The second truncation in OECD’s BEPS Action 13 is that of limiting the use of the data and ruling out the use of the data for transfer pricing or tax base adjustments to enable formulary apportionment of income.
That is an enforceable provision in the OECD rules directly in opposition to a clause included and widely accepted to this day in the UN model tax convention under Art. 7.4.
These two OECD treatments of country by country reporting have truncated the tool and solidified a deeply unjust and unfair asymmetry in taxing rights.
In addition to this truncation, the OECD has failed to live up to its commitment to complete a review of the CBCR standard in 2020, after a consultation showed broad support for public access, incl. by investors.
I am telling this episode not to entertain or bore you – but for 2 reasons. First, because I hope it reminds us of why we need a high-level commitment to work on corporate tax matters in the Terms of Reference.
Second, I mention this because I believe we also need a high-level commitment of public CbCR in the ToR.
Healing the OECD truncations could help releasing upfront significant revenues in developing countries – and in developed countries alike.
Public CbCR should be created under a robust standard, and we believe that the Global Reporting Initiative’s GRI 207 standard should be among those tabled for review by the Ad Hoc Committee here, as it is currently the most robust and reliable existing standard – or to be tabled and reviewed but the subsequent committee.
In addition to this, a Global Asset Registry that establishes the infrastructure for enabling the taxation of high income individuals by laying down systems and IT parameters, protocols that enable the registration and interfacting, exchanges about bank accounts, about financial securities, about real estate, vessels, yachts, about airplanes, about other high value assets, would be prerequisite to enable the progressive taxation of individuals both by the personal income tax, and by means of a wealth tax. In this regard we would request the GAR to be included for consideration as another high-level commitment in the Terms of Reference.
Full Tax Justice Network statement on Country by country reporting here:
6:20pm GMT+1: Live updatefromSergio Chaparro-Hernandez
A second group 2 (majority – over 60 countries) supported the inclusion of corporate taxation as a sustantive issue to include in the ToRs. A few countries made some nuances in regards to the need to build on the progress made in the context of the OECD's Inclusive Framework. pic.twitter.com/dKq5v7LL7s
A somewhat surprising procedural hickup happened just now, when France objected to the proposition by the chair to allow contributions by civil society to be made during the session rather than only at the end of the session, when no other member state raises their hand. pic.twitter.com/zeAkZa9clb
2:00pm GMT+1: Insights from Day 3: Sergio Chaparro-Hernandez’s Recap
On day 3, the Ad Hoc Committee had extensive discussions on the substantive issues that the Framework Convention should include in the form of high level commitments. The morning session addressed the issue of domestic resource mobilisation (DRM). A first group of countries, including Sweden, Korea, Austria, Norway, the United States, Italy, the Netherlands and Belgium either had an understanding of DRM that equated it primarily with capacity building or, recognising that the concept implies broader dimensions, suggested that the Convention should focus on capacity building. A second group, including India, Nigeria, Bahamas, Kenya, Senegal, Colombia, Algeria, Tanzania, Russia and Belize advocated separating the issue of DRM from capacity building, and emphasising that DRM should include the issue of fair allocation of taxing rights and its connection to the SDGs. Tax Justice Network Africa reinforced this point by noting that capacity building is not a panacea and DRM must address historical imbalances in the distribution of taxing rights.
A second segment of the morning addressed the issue of taxation of high net worth individuals. Brazil and Spain indicated that they support the inclusion of this issue, and that they have been advancing a proposal on this in the context of the G-20, recognising the importance of the discussion of the UN Framework Convention as an appropriate scenario to address it. Some interventions, both from countries from the Global North and the Global South, argued that this is a domestic taxation issue. While some advocated for not addressing it in the Convention, others argued that it should be addressed more broadly under a wider objective, be it DRM or combating inequalities. Other states, such as India and Colombia, argued that the issue raises a dimension of international cooperation that should be the way it is addressed as part of the Convention. Colombia proposed a global registry of beneficial owners of different types of assets, along the lines of a Global Asset Registry. Interventions by Alliance Sud and Oxfam reinforced the need to include the issue of taxation of high net worth individuals in the Convention.
In the afternoon session, although with different emphases on the issues, there was broad agreement on the importance of addressing taxation measures to address climate and environmental challenges as part of the Framework Convention. A second segment consisted of a dialogue with international institutions. And the afternoon session continued with discussion of other topics that could be included as part of the high level commitments in the ToRs, including the problem of blacklists raised by the Bahamas and the ABC of tax transparency that the Tax Justice Network had the opportunity to talk about.
Negotiations for a UN Tax Convention in New York have changed in tone and dynamic on Tuesday. While on Monday it seemed as if OECD countries had teamed up to stall the negotiations by insisting on non-duplication and complementarity, the style and inputs appear more constructive.
Sergio Chaparro-Hernandez, International Policy and Advocacy Lead for the Tax Justice Network, addressed the negotiations concerning the Terms of Reference (ToR) for a UN Tax Convention. His emphasis was on the necessity for enhancements to the fundamental aspects of tax transparency, known as the ABC of tax transparency, to operate in a more comprehensive, inclusive, and efficient manner. This, he argued, is crucial for combating illicit financial flows and facilitating domestic resource mobilisation.
Tues 30 April 2024
5:45pm GMT+1: Ad Hoc Committee to Draft Terms of Reference for a United Nations Framework Convention on International Tax Cooperation – Delivered by Markus Meinzer, Tax Justice Network
12:15pm GMT+1: Maria Ron Balsera, Interim Executive Director of the Center for Economic and Social Rights explains why the framework convention negotiations offer a unique chance to rectify unfair international tax rules, leveraging taxation’s corrective powers to establish a just framework grounded in human rights principles resilient to future challenges.
9:15am GMT+1: Catch up on yesterdays discussions
On Monday the Committee discussed two main issues. The morning session was scheduled to discuss the possible skeleton or outline of the terms of reference that had been shared by the Secretariat as a starting point for discussion. A first group of countries – mainly those that voted against the resolution adopted last year – pointed out that the terms of reference should give very general guidelines and focus on the procedural aspects of drafting the Convention – without prematurely addressing anything that could prejudge its content. A second group showed stronger support for the Secretariat’s previous work, with some clarifications. They suggested the ToRs should have a broad based approach where all issues should be up for discussion, and that the ToRs should include some substantive scoping such as the draft outline of the elements of the Convention proposed by the Secretariat. The discussion then focused on whether a point on decision making rules should be included and whether it should be moved from Annex 1 to the skeleton of the ToRs (as suggested by members of the first group) or whether it should be left where it is, bearing in mind that the decision making rules of subsidiary bodies such as the Ad Hoc Committee should be the same as those applying to the General Assembly. The session ended with the intervention of civil society, led by the FfD Civil Society Mechanism, and ATAF insisting that the Ad Hoc Committee is not entitled to change the rules that should govern the discussion of the subsidiary bodies of the General Assembly.
The afternoon session discussed the introductory elements of ToRs (Preamble, Objectives and Principles). Countries made specific suggestions on these aspects, but the main discussion was around the principle of complementarity. Differences on the problems of the current tax architecture and whether or not it is unfair, as well as how existing instruments should be dealt with, emerged in the afternoon conversation. Civil society insisted that instruments that had not been negotiated in an inclusive manner could not be incorporated into a Convention that is meant to be inclusive, an idea that was supported by countries such as Pakistan. Issues of equity, human rights and special and differential treatment were also discussed.
3:15pm GMT+1: A UN convention with the ABCs of Tax
The ABCs of tax justice ensures the UN’s tax convention paves the way for fair, progressive taxation worldwide. Stand with the tax justice movement to advocate for a #UNtaxConvention that promotes democratic, transparent, and inclusive reform of #GlobalTaxRules, bridging inequalities across borders.
Fri 27 April 2024
4:00pm GMT+1: First Session now underway
The First Session of the Ad Hoc Committee is now underway! The session will run from today until Tuesday 8 May. The session will give all countries an opportunity to inform the provisional work of the Ad Hoc Committee on the terms of reference
3:00pm GMT+1: New EU position on the UN Tax Conventionannounced
A new EU position on the UN Tax Convention (a from 24 April) has been released and can be found online here.
The document is quite broad, but it’s a slight improvement from the EU Common Approach released last September in 2023. According to the new position:
“…the proposed UN Framework Convention on International Tax Cooperation should aim to promote global dialogue and create policy synergies. In recognition of the call for more inclusive and effective international tax cooperation, international dialogue at the United Nations in relation to a future Convention should aim to gather countries to exchange effective practices on mobilising domestic resources through both tax policy formulation and the strengthening of enforcement mechanisms. This effort underscores the pivotal role of the United Nations in supporting UN member states to mobilise domestic resources and finance development strategies, aligning closely with the aspirations outlined in General Assembly resolution 78/230.”
For more information on individual countries’ demands for the UN process and what they want from the UN negotiations, see our public spreadsheet here.
Thurs 26 April 2024
09:30pm GMT+1: Get up to speed ahead of this week’s First Session with our blog
Our International Policy and Advocacy Lead Sergio Chaparro-Hernandez has written a catch-up blog about what has happened so far this year leading up to the negotiations kicking off this week and about what we can expect over the coming days.
4:15pm GMT+1: UN publishes a draft outline of the terms of reference and the framework convention
Things are getting real! In preparation for this week’s session, the Ad Hoc Committee has published a draft outline of the terms of reference, which is being negotiated this year, an the framework convention itself, which will be negotiated after the terms of reference are agreed.
Fri 19 April 2024
2:20pm GMT+1: South Centre calls out unhelpful behaviour from OECD countries
Powerful statement from Dr Carlos Correa, head of the intergovernmental South Centre, to the intergovernmental G-24, highlighting the unhelpful behaviour of OECD members and the continuing failure of the OECD process to deliver either consensus or progress. Noting that even an unlikely success in the OECD process would deliver little or nothing for developing countries, the South Centre’s clear call is for all efforts to be concentrated on the negotiation of a UN framework convention on tax.
“On taxation issues, we note that the deadline of 31 March 2024 for finalizing the OECD digital tax solution of Amount A of Pillar One has been once again missed, with developed countries making increasingly extreme and irrational demands as preconditions to sign the Amount A Multilateral Convention. We strongly reiterate our recommendation that developing countries no longer wait and keep losing revenues, and immediately commence with unilateral digital tax measures such as Digital Services Taxes (DSTs) or Significant Economic Presence, and consider Amount A only after it has been ratified by major developed countries, particularly the USA. The South Centre in partnership with the African Tax Administration Forum and the West African Tax Administration Forum will soon come out with country level revenue estimates on Amount A vs DSTs for the 85 combined Member States of the African Union and the South Centre, and this can provide valuable data for informed decision making and on the opportunity cost of continuing to not take any action.
“Regarding the OECD Global Minimum Tax (GMT) of Pillar Two, the OECD’s own revenue estimates show that only 1.6% of the profits taxable under the GMT are located in lower middle-income countries, and only 0.1% are in low-income countries, making the OECD GMT irrelevant for the vast majority of developing countries. Further, even in countries where these minimal profits are located, the multinational enterprises can continue to shift profits and pay zero in taxes owing to the design of the rules. We reiterate that reforming wasteful tax incentives and an alternative minimum tax with a tax base such as turnover can be far easier to administer and bring in revenues, unlike the complex OECD Global Minimum Tax whose cost of administration is most likely to exceed any revenue collected.
“We welcome the historic resolution 78/230 of the UN General Assembly to prepare the Terms of Reference (ToR) for a UN Framework Convention on International Tax Cooperation. We call on all developing countries to actively participate in the Ad Hoc Committee which will draft the ToR, and allocate sufficient resources for the travel to and participation of delegates in New York. The South Centre has submitted inputs to the Ad Hoc Committee.”
1:00pm GMT+1: The Center for Economic and Social Right’s analysis of submission to the UN Ad Hoc Committee
The Center for Economic and Social Right has published an insightful analysis of countries’ written submissions to the Ad Hoc Committee detailing their views and stances on the terms of references.
“The call [for submissions] received 103 inputs in total, including 49 responses from United Nations Member States. These numbers indicate strong engagement with the international tax debate now that the UNTC is a certainty. A similar call for inputs from the Secretary General last year received 92 submissions in total, which consisted of only 28 responses from Member States (read our analysis here). Hence, the engagement of Member States has considerably increased. Other inputs include 1 from a member of the UN Committee of Experts on International Cooperation in Tax Matters, 4 from United Nations Organizations, 6 from other international organizations, 10 from businesses and others, and the remaining 33 from civil society and academia.”
In the next six months, United Nations member states will have to decide on the terms of reference for a UN framework convention on international tax cooperation (UNFCITC). This means that they will have to set the roadmap for negotiating the most important international tax instrument ever drafted. This is a once-in-a-century opportunity to redefine the pillars of the international tax system and to make it fully inclusive, just and effective.
The mandate for this task was given by the UN General Assembly to an Ad Hoc Intergovernmental Committee through the adoption of Resolution 78/230 in December 2023 (see the positions that countries adopted on the Tax Justice Policy Tracker and the voting records here). The Ad Hoc Committee must prepare and submit the terms of reference to the General Assembly by August 2024 at the latest.
The timetable for this process is already set and underway. The organisational session, which elected the chair and the bureau that will guide the discussions of the Ad Hoc Committee, as well as other rules for its operation, took place from 20 to 22 February 2024 at the United Nations in New York.
Next up on the schedule is the first substantive session, which will run from 27 April to 8 May. The session will give all countries an opportunity to inform the provisional work of the Ad Hoc Committee on the terms of reference.
What happened at Februrary’s session and what can we expect from the April’s? We delve into this below.
Dispute at the organisational session over decision rules and scope
A very positive development for the international tax discussions is that the organisational session was broadcasted live in its entirety, and anyone with internet access from anywhere in the world could follow it. The high standard of transparency of the discussions that have started at the UN contrasts with the closed sessions that have been held at the OECD on international taxation issues over the past decade.
It is because of this unprecedented level of transparency in international tax negotiations that the Tax Justice Network can make available to the public the transcripts of the sessions, and an account of the positions adopted by states. We can also contrast how these positions relate to the performance of countries on the Financial Secrecy Index, our ranking of countries most complicit in helping individual hide their finance from the rule of law, and the Corporate Tax Havens Index our ranking of countries most complicit in helping multinational corporations underpay tax. The analysis below is based on these tools. We invite other stakeholders to use them extensively to produce their own analysis.
The first key moment of the session was the election of the Bureau to guide the Ad Hoc Committee’s discussions. Egypt’s Deputy Minister of Finance Mohamed Youssef was elected as chairperson. Four representatives of the five regional groups were also elected for a total of 20 members. Although the Bureau is not a decision-making body, its role will be key in organising the work of the sessions and proposing options to bring divergent positions closer together to enable the Committee to move forward and fulfil its mandate.
A second noteworthy development is that several of the 48 countries that had voted against Resolution 78/230 last year are now actively participating in the process. The European Union, for example, which voted as a bloc against the resolution last year, accepted the path set out by the resolution by stating in its initial statement at the organisational session that, “the UN framework convention on tax cooperation can and should serve to further promote tax transparency and fair taxation” (see analysis by the Tax Justice Network’s CEO Alex Cobham on why the European Union should start looking to the UN as the way to achieve the universal tax standards they have sought for themselves).
Following the presentation by the Secretariat to clarify what the mandate to draft the terms of reference of a framework convention means, delegations raised questions on the decision-making procedures and the scope of this task, but none of them at this stage questioned the mandate of the Ad Hoc Committee.
The main controversy in the session was around the decision-making rule under which the Ad Hoc Committee should operate. It is customary for subsidiary bodies of the UN General Assembly, such as the Ad Hoc Committee, to operate under the same rules of procedure as the UN General Assembly. Although these rules imply a strong preference for consensus, and the procedures are geared towards the search for consensual decisions, they also recognise the possibility of taking decisions by simple majority when consensus is not possible, which facilitates the fulfilment of the mandate assigned to the Committee in question.
Broadly speaking, the same bloc that voted against last year’s Resolution 78/230 (and some of those that abstained), initially called for the rules of procedure to be amended so that it could be established that decisions must be taken by consensus – and not, in any scenario, by simple majority. It is worth noting that this bloc of countries is a sample of countries in the top half of the Tax Justice Network’s Financial Secrecy Index ranking (from the United States in the dishonourable 1st place position to Turkey in 59th place).
It is also worth noting that Latin American countries that initially spoke in favour of a consensus rule for the Ad Hoc Committee, such as Chile and Mexico, softened their position during the course of the session. Had this amendment been realised it would have meant, in practice, giving veto power to any of the countries that opposed the resolution. This would then make it more difficult to fulfil the mandate given to the Ad Hoc Committee to draft the terms of reference of a UN framework convention on tax within six months.
The solution adopted by the Ad Hoc Committee was to introduce a paragraph proposed by Colombia which established that “every reasonable effort should be made, within the available time frame for negotiations, to seek consensus on substantive matters”. Prior to this paragraph it was clarified that the Ad Hoc Committee would operate under the same rules as the General Assembly – which in effect implies the possibility of taking decisions by simple majority vote. Although some countries such as Canada, Australia, the UK and others wanted to register their concern on this possibility in the final report of the session, this was not feasible under the rules of procedure.
With the basis for an agreement in place, the Ad Hoc Committee then approved two key documents that will form part of the final report of the organisational session:
Annex I: Outline and modalities for the work of the Ad Hoc Committee to Draft Terms of Reference for a UN framework convention on international tax cooperation (preliminary unedited version)
Annex II: Modalities for multi-stakeholder engagement in the work of the Ad Hoc Committee to Draft Terms of Reference for a UN framework convention on international tax cooperation (preliminary unedited version)
The discussion at the organisational session to set the agenda of the first Ad Hoc Committee’s substantive session to be held in April and May was also an opportunity for some delegations to raise the problems they believed could be addressed by a UN framework convention on tax. The chair opened the discussion by pointing out, by way of example, the following problems:
Full consideration of the existing multinational and international arrangements would leverage existing stance and address gaps and weaknesses in current international tax cooperation efforts and arrangements.
Clear and coherent rules that are responsive to changing business models, technological innovation, and globalisation while helping to ensure that taxpayers are neither excessively burdened by these pre-tax rules nor allowed to aggressively avoid payment of tax.
Maintaining a fair and equitable balance of taxing rights between residents and source countries.
Developing a precise dispute resolution mechanism that considers the capacity of developing countries.
Adopting rules that should be adequate and sufficient to discourage illicit financial flows.
Addressing the challenges related to the digitalisation of the economy.
Addressing the issues of harmful tax competition between countries.
One positive aspect of the subsequent discussion is that some of the most vocal opponents of the idea of a binding tax instrument at the UN spoke up on the content that such an instrument could include. For example, the UK, which had proposed an amendment to last year’s resolution to delete the word “Convention”, argued this time that the framework convention should consider how member states can support each other to increase domestic resource mobilisation through shared best practices and capacity building, as well as issues of climate change and new technologies.
Although several Member States that voted against last year’s resolution mentioned the risk of duplication with other existing instruments, it is important to note that the creation of a new international legal regime, which is the purpose of a framework convention (see section 2), implies the harmonisation of existing instruments with the principles, objectives and obligations of the framework convention. It is only such an instrument that would be able to address, at its root, the risk of duplication and fragmentation under universally shared principles.
Other states called for a framework convention with a more ambitious scope. For example, Russia suggested that the Convention should make progress on at least five aspects: 1) a multilateral model for the conclusion of international tax instruments reflecting the latest developments of the UN Committee of Experts on Taxation; 2) the creation of a UN Platform to Exchange Knowledge on tax administration given digitalisation; 3) the definition of a global basis to determine the status of tax residence; 4) tax and climate change policy issues; and 5) general criteria for preferential tax regimes.
Colombia went further and added that the framework convention should address inequalities between both individuals and legal persons; inequalities in taxation rights (between countries of residence and source countries); resource mobilisation for climate action and consider the creation of an independent UN tax body in addition to the Conference of the Parties. Caribbean countries, and particularly the Bahamas, raised concerns with blacklisting, as well as the need for predictable rules under a common standard suitable for all countries and transparent global tax governance that promotes equality and considers the perspectives of the Global South.
Also worthy of note was an important discussion that took place in the organisational session about the adoption of early protocols, which are complementary instruments that could lead to tangible outcomes from the process while the negotiation of the framework convention happens. Resolution 78/230 states that the Ad Hoc Committee may “consider the possibility of simultaneously developing early protocols while the framework convention is being developed on specific priority issues, such as measures against illicit financial flows related to taxation and taxation of income derived from the cross-border supply of services in an increasingly digitised and globalised economy”. While some countries, such as Canada, considered that the Ad Hoc Committee should focus only on the terms of reference, the African Group and countries such as Colombia advocate the possibility of advancing early protocols on issues of combating illicit financial flows and on issues of progressive taxation.
The way forward: procedural and substantive issues to draft the terms of reference for a UNFCITC
The organisational session defined the agenda to be discussed at the first substantive session to be held between 26 April and 8 May in New York. In accordance with the participatory mechanisms adopted in Annex II, the Secretariat opened a call for contributions from different actors (including civil society organisations) to inform the deliberation on the procedural and substantive provisions of the terms of reference, as well as on the issue of early protocols. All the inputs submitted are available . At the Tax Justice Network, we align ourselves with the joint submission made by the Global Alliance for Tax Justice and the Civil Society Financing for Development Mechanism as well as with the one made by the Centre for Economic and Social Rights. We contributed also with a complementary submission. With a view to track the demands that States made at the written submissions, we are releasing a compilation on Who Wants what from a UN Tax Framework Convention.
A first discussion that will be critical in the forthcoming sessions is the type of Framework Convention that different actors will push for (the debate on a possible Framework Convention on the Right to Development can be a good proxy of the dilemmas at stake). A Framework Convention consists of the gradual establishment of a legal regime. These instruments usually contain substantive provisions expressed in the form of objectives, principles or general obligations, and institutional provisions, which are aimed to create authoritative spaces (such as the Conference of Parties) to agree on new normative instruments, as well as to define the rules of operation and the mechanisms for the participation of other actors in these spaces. This means a Framework Convention is a flexible approach to the definition of a legal regime, as it defines a common framework for the development of more specific agreements that states may decide to ratify or not.
One of the key debates will be around the balance between the procedural and substantive provisions of the framework convention. Will it be an instrument like the UN Framework Convention on Climate Change (UNFCCC) that focuses on procedural aspects and substantively outlines very general content at the level of principles or objectives? Or will it be an instrument that, in addition to defining procedural aspects, contains more specific substantive guidelines on the type of problems and measures that should be adopted on international tax cooperation, in the way that the WHO Framework Convention on Tobacco Control (WHO FCTC) does? An instrument such as the UNFCCC might facilitate ratification of the instrument by most of the states that could otherwise block the process, but it would weaken the scope of the obligations and create the risk that concrete action would have to wait until the negotiation of protocols on certain issues. An instrument such as the WHO FTCC might establish more demanding obligations but increase the risks that the blockers do not ratify the instrument.
The proposals that have so far circulated in this regard, such as the Economic Commission for Africa’s technical report and associated briefing document; the Eurodad/Global Alliance for Tax Justice draft text for a UN tax convention; the South Center brief, the FACTI Panel report, and the report of the High Level Panel on Illicit Financial Flows out of Africa, imply different balances between substantive and procedural provisions. The Secretariat has published a document for informal discussion containing both a Proposed Outline of Draft Terms of Reference and an annex with an index of possible structural elements of the Convention itself. Complementary analyses have been published by Professor Sol Picciotto and other voices (for real time updates follow our rolling blog).
One way to seek the right balance is to explore for what combination of objectives, principles and specific provisions, using learning from the experience of other similar instruments, would increase the likelihood that all key issues could be addressed under a fair framework with sufficiently robust obligations within reasonable timeframes. This may require that the objective of the framework convention is broad enough to gradually build a framework for cooperation with the mandate to address any international taxation issue that Member States consider relevant. A second step would be to establish a set of comprehensive principles on the just distribution of obligations and benefits to be borne by the parties as part of the global cooperation framework on tax matters created by the instrument, in the way that the UNFCCC establishes, for instance, the principle of common but differentiated responsibilities between states. Finally, a series of more specific provisions could establish mandates for action and clear obligations on certain issues, but the operational details could be addressed in the negotiation of protocols. Tax Justice Network’s input to the first substantive session set out briefly the basis for a protocol on illicit financial flows, but on the basis that such a protocol should form a central element of the convention from the outset we identify the potential for its inclusion in the core text of the convention, rather than as an early protocol. Same can be done with other key issues agreed by State Members.
If the content of the framework convention defined this substantive framework of objectives, principles and obligations, the procedural provisions should be concerned to create an institutional structure that is strong enough to technically support the Conference of Parties and other bodies in the development of the Convention’s mandates. In addition to endorsing the proposals on the matter from the tax justice movement, the Tax Justice Network’s input proposed the establishment of a UN Centre for the Monitoring of Fiscal Rights – mandated with the task of administering key global public goods such as a global asset register, a public register for tax and fiscal policies, and a public register for corporate transparency – as well as the establishment of an independent secretariat.
The eventually agreed terms of reference will form the basis of a resolution at the next General Assembly, a resolution that will begin the formal negotiations of the convention.
As a conversation starter and an illustration of the potential of the UN framework convention on international tax cooperation, the Tax Justice Network offers a draft operative paragraph for this resolution.
Draft OP3
3. Requests the ad hoc committee, in developing the draft convention, to adopt a holistic, sustainable development perspective that considers interactions with other important economic, social and environmental policy areas, to take into account the needs, priorities and capacities of all countries, in particular developing countries, and to consider, inter alia, the following indicative elements:
general principles, including those of sovereignty and non-discrimination; of effective provision of tax information; of fair allocation of taxing rights; of mutual assistance and cooperation; and of transparency and disclosure;
definitions, use of terms and scope, including with reference to the formal UN statistical definition of illicit financial flows;
capacity-building and technical assistance, including support to developing countries and collaboration with international organisations;
review and monitoring of the convention’s implementation;
establishment of a Conference of the Parties, and main modalities including its mandate, procedures and schedule;
multilateral, automatic exchange of information about financial accounts and related asset classes, without the requirement for immediate reciprocity from developing countries;
good governance practices and transparency in financial transactions to prevent illicit financial flows and enhance the integrity of the international financial system;
international cooperation, coordination and transparency in the recovery of assets derived from illicit financial flows;
transparency of the beneficial owners of companies, trusts, partnerships and other legal vehicles, through public registers;
transparency of the economic activity of multinational groups through the requirement for annual publication of country by country reporting data at the company level, in line with the Global Reporting Initiative standard Tax:207 and/or other robust standards;
appropriate public disclosures including tax policies and practices, by national tax authorities to strengthen public accountability and effective cross-border cooperation;
common principles for effective and independent enforcement by tax authorities;
unitary taxation based on formulary apportionment, in order to ensure corporate tax is levied in the jurisdictions where the underlying real economic activity takes place;
dispute resolution procedures, including through mutual agreement;
common principles for the taxation of wealth;
the establishment of a UN Centre for Monitoring Taxing Rights, with responsibilities including:
a global asset register, combining public data components and components held privately for tax authorities and other enforcement bodies, to underpin the fight against illicit financial flows including tax abuse;
a UN public registry for tax and fiscal policies;
a UN public registry for corporate transparency; and
publication of regular analyses of progress, including in support of Sustainable Development Goals 16.4 (illicit financial flows) and 17.1 (taxation); and
the establishment of a secretariat for the convention, with responsibilities including support to the Conference of the Parties, and the UN Centre for Monitoring Taxing Rights.
After decades of slow but steady transparency progress (eg automatic exchange of banking information, beneficial ownership transparency, country by country reporting), secrecy promoters have found a strategy to turn back the clock on hard-fought transparency advances. They are weaponising the rights to privacy and data protection to prevent access to information by the public as well as by competent authorities. This blog post looks at the implementation of the strategy against beneficial ownership transparency. It introduces our latest report dismantling these privacy-washing arguments. We need to reinstate the path to transparency to prevent the rich and powerful from escaping the rule of law that applies to everyone.
Secrecy: the cheating device that was in decline
Secrecy is the main tool used by criminals and wealthy individuals who try to escape the rule of law and who benefit from illicit financial flows. These flows refer to the billions of dollars related to tax abuse, money laundering, corruption or the financing of terrorism that escape government treasuries all over the world. Thanks to sophisticated schemes developed by lawyers, accountants, service providers and other enablers, these funds are channelled through companies, trusts and other legal vehicles, into bank accounts, cryptoassets, real estate, businesses and many transactions that cover their tracks and evade investigators. These schemes enable those engaging in illicit financial flows to enjoy ill-gotten funds without worrying about law enforcement, taxes or public scrutiny.
In the last decade, many of the transparency advances advocated by the Tax Justice Network and other allied organisations have become part of international standards and country practice: automatic exchange of bank account information, beneficial ownership transparency and country by country reporting, to name a few.
Civil society organisations have yet more ambitious goals: access to automatic exchange of banking information by all developing countries; public access and comprehensive beneficial ownership transparency for trusts, listed companies and investment funds; fully public country by country reporting following the GRI standard, a global asset registry, etc.
But trend of progress on ambitious and effective transparency is now facing one of its biggest challenges in years. Secrecy promoters have discovered a successful weapon: manipulating the court system – to threaten much of the transparency infrastructure that had previously been developed. There is now a real risk of sending us back to the dark ages of dirty money.
Secrecy promoter’s unsuccessful trial and error against transparency
With every new transparency measure, secrecy promoters and secrecy jurisdictions fought back, unsuccessfully. When the EU started discussing automatic exchange of information, Switzerland tried to push for its own version, known as the Rubik agreements, that involved withholding taxes rather than exchanging information (to maintain anonymity). When global automatic exchange of information became a reality in 2017, secrecy jurisdictions cherrypicked who they would be exchanging information with. When countries were required to automatically exchange banking information with each other, enablers started promoting circumvention schemes (eg transferring accounts to countries not yet participating, golden visas, etc). In response, the OECD proposed mandatory disclosure rules on schemes to circumvent automatic exchanges and identified risky golden visa schemes.
In the EU (before Brexit), the UK pushed for trusts to be subject to fewer beneficial ownership requirements and disclosure than companies and legal persons were. For instance, by 2015 only trusts that generated tax consequences were required to register information under the EU 4th anti-money laundering Directive. However, by 2018 the EU had amended its anti-money laundering directive and removed the “tax consequences” condition, and even required access to trust beneficial ownership information based on a legitimate interest. In respect of companies, the EU established public access to information. Many countries went even further, offering free online public access.
Secrecy promoter’s success: the weaponisation of privacy and data protection
After many attempts, secrecy promoters discovered that arguments relating to the rights to privacy and data protection – as well as to the concepts of confidentiality and safeguarding – were well-received by courts and some country authorities.
On 22 November 2022, the European Court of Justice ruled that public access to beneficial ownership information for the purposes of money laundering violated the right to privacy, allowing several EU countries to close their (until-then) public online registries. However, this was not an isolated case, but part of a series of lawsuits and measures of weaponising the right to privacy, confidentiality and data protection against transparency:
1. Automatic exchange of information
Confidentiality requirements
As described above, secrecy jurisdictions tried to prevent automatic exchange of information from coming into existence (eg the Swiss Rubik agreements), and when it became a reality, they tried to exclude developing countries by cherrypicking with whom to engage. When this was no longer possible, the only way to exclude countries (other than circumvent the automatic exchange altogether through golden visas or other schemes) was to claim that jurisdictions failed to meet confidentiality requirements to receive the data, as required by the OECD standard:
“The Global Forum put in place a specific process to assess whether jurisdictions committed to AEOI [automatic exchange of information] meet the confidentiality and data safeguarding requirements, as a condition to receive data.”
Switzerland for instance invoked lack of confidentiality requirements to suspend exchanges of bank account information with Bulgaria.
Suspend automatic exchanges between Belgium and the US
On 24 May 2023, the Belgian Data Protection authority banned the automatic exchange of bank account information of “accidental” US citizens residing in Belgium to the US because it considered the agreement to exchange information was not in line with the EU general data protection regulation (GDPR).
Attempt to suspend automatic exchange of information between the UK and the US
The same attempt was made in the UK to suspend and obtain compensation for breaches to the data protection of an American whose bank account information had been automatically exchanged with the US.
2. Beneficial ownership
Closure of public trust registry in France in 2016
Even before the European Court of Justice ruling of 22 November 2022, a court in France also invalidated public access to beneficial ownership information after it ruled it violated the right to privacy. The case shared some similarities to other cases: it involved an American residing in Europe, and coincidentally the first ruling came out on the 22nd of a month, this time July. This case from 2016 referred to public access to beneficial ownership information of trusts contained in a French trust registry that had been established to tackle, not money laundering, but the tax abuse risks of trusts.
Attempt to ban the Dutch beneficial ownership registry
In 2021 the District Court in The Hague ruled against the foundation “Privacy First”, which tried to ban the beneficial ownership registry of the Netherlands based on violations to the right to privacy.
Alabama judge declares US beneficial ownership registry unconstitutional
The National Small Business Association filed a lawsuit in the US against the Corporate Transparency Act which established a (non-public) beneficial ownership registry claiming that the law is unconstitutional because it violated rights of state sovereignty, privacy and due process. In response, a judge in Alabama considered that the law was unconstitutional. The exemption from beneficial ownership registration would only apply to the claimants but not to the rest of US entities.
3. Country by country reporting
Not public because it has confidential information
In the case of country by country reporting, which offers a map of where multinationals have operations, employees and how much taxes they pay (if any), there was no strong need to go to courts to challenge this transparency measure because the OECD made the measure confidential from the beginning. The OECD requires under BEPS Action 13 that country by country reporting information be disclosed to authorities only. As the OECD argued in this FAQ on country by country reporting, the decision to not make the information publicly available was to “protect the confidentiality of potentially sensitive information”.
The sensitivity of this information however is very questionable. Plenty of practice shows many stakeholders don’t think it is. The EU has long published country by country reporting information from the banking sector, and several companies have voluntarily committed to making their country by country reporting information publicly available, for example by signing up to the GRI tax standard. Investors responsible for trillions of dollars have specifically called on the OECD to make multinational corporation’s country by country reporting information public.)
4. Mandatory disclosure rules
Some frameworks require enablers and/or taxpayers to report certain schemes that could be used to engage in tax abuse (eg under BEPS Action 12) or to circumvent the OECD common reporting standard (CRS) for automatic exchange of information. This could be considered a silver bullet to address illicit financial flows. However, many of these regimes have not prospered:
Argentina’s mandatory disclosure regime suspended by courts throughout the country
Argentina’s tax administration had attempted to establish a mandatory disclosure regime related to tax abuse via Resolution 4838. However, several lawsuits throughout the country claimed the measures affected the confidentiality of professional intermediaries. Several courts invalidated the Resolution, pushing the tax administration to suspend it and then modify the regime to exempt professional intermediaries from reporting.
Ecuador’s attempt to establish a mandatory disclosure regime for tax abuse ruled unconstitutional
Ecuador also tried to establish a mandatory disclosure regime to disclose tax abuse schemes via a law. However, lawsuits claimed that the measure violated the privacy of communications between a client and professionals. In 2022, the Constitutional Court declared the measure unconstitutional.
The European Court of Justice invalidated part of the mandatory disclosure rules based on a Belgian lawsuit
In the EU, the mandatory disclosure rules related to tax abuse (based on BEPS Action 12) and avoidance of automatic exchange of information (OECD Model mandatory disclosure rules) were required as part of an amendment to the EU Directive on Administrative Cooperation (aka DAC 6). There was a lawsuit in Belgium against professional intermediaries needing to report some information because it affected their rights to privacy and confidentiality of communications with their clients. The European Court of Justice ruled in their favour.
Understanding the weaponisation of privacy
Secrecy promoters are weaponising a very relevant right (privacy), not to protect the masses against state intrusion, but to protect the corporate schemes of the rich and powerful to engage in illicit financial flows. In fact, as discussed in this blog post based on information disclosed by the UK case law Webster v HMRC against automatic exchanges with the US, it appears that the campaign to weaponise privacy may be better organised and financed than feared.
Privacy is a fundamental human right. It is related to the self-determination of individuals, allowing them to have autonomy over their own decisions and activities, preventing intrusions from governments, companies or other individuals. It covers their physical space, communications and especially personal information relating to issues around their health, sexual orientation, religion etc. A cornerstone of this right to privacy is the right to protection of personal data, to give individuals control over the collection, processing, use and sharing or disclosure of their personal information.
Many citizens, privacy advocates and experts are rightfully wary of any attempts by the state or third parties that could affect their right to privacy. These are legitimate concerns. The problem is that these legitimate concerns are being repurposed by secrecy enablers to promote their own interests in maintaining a system of financial secrecy that makes it possible for the rich and powerful to remain above the law.
Secrecy promoters secured a ruling by the European Court of Justice to invalidate public access to information based on the right to privacy and the risk to individuals (even though the main plaintiff in the case was publicly disclosing his own wealth and whereabouts.) Regardless of the plaintiff’s hypocritical behaviour in this particular case, the reality is that public beneficial ownership registries don’t affect privacy. They only disclose a very limited amount of information about the individual. Typically, this tends to be the individual’s full name, the month and year of their birth (rather than their specific date of birth), and, crucially, the interests or share they hold in companies. No information is disclosed about the individual’s wealth nor the wealth of the companies they own. No information is disclosed about the individual’s residential address or location. Even then, most beneficial ownership registers have always allowed any individual who proves they are at risk to get an exemption from having to publicly disclose their information on the register.
Our latest report dismantles the privacy-washing arguments being raised and used against transparency. The report covers four areas:
Rights to privacy and personal data protection
Rights that are put at risk by a lack of public transparency
Arguments about increased risks of harm and crime
Arguments about who should access beneficial ownership information
Beneficial ownership transparency is one of the few policies that competent authorities (especially law enforcement), financial institutions, investigative journalists, civil society organisations working against illicit financial flows and other actors, all agree on. Still, a group of secrecy promoters (including lawyers protecting oligarchs) have succeeded in convincing courts that secrecy is what protect the masses from the state, to ensure their privacy. The reality is that most vulnerable people don’t own companies or trusts, and those that do most likely employ rather simple structures.
The only ones who would see the benefit of closing beneficial ownership registries are corrupt officials, sophisticated criminals and high net worth individuals who employ complex offshore structures to undertake their affairs and hold their wealth, hidden and untaxed.
It’s time for all, especially the courts, to see this privacy washing campaign for what it is. Restoring public access to beneficial ownership is the first step towards stopping this campaign for opacity.
Ireland has once again found itself in the crosshairs of a United Nations human rights body due to its ongoing facilitation of international tax abuse. Following concerns raised just last year by the Committee on the Rights of the Child, another UN body – the Committee on Economic, Social and Cultural Rights – has also weighed in, demanding that Ireland account for the human rights impacts of its tax haven policies.
The Committee, which reviewed Ireland at its 75th session last month, focused six separate recommendations on the country’s nefarious fiscal regime, calling for measures to address human rights impacts at both domestic and international levels. As part of a wide-ranging interrogation of its compliance with its economic and social rights obligations, it called on Ireland to:
“Strengthen measures to combat illicit flows, cross-border tax evasion, and tax fraud, in particular by wealthy individuals and business enterprises operating or domiciled in the State party’s jurisdiction, including through the adoption and enforcement of mandatory due diligence mechanisms, in order to contribute to international efforts to that effect and to enable other countries to secure the resources necessary for the realisation of economic, social and cultural rights.”
It also enjoined the country to “take all necessary measures to avoid a situation which allows for shell companies to be used for profit-shifting, tax evasion and fraud.”
The Committee went on to echo a long-standing call of civil society organisations in Ireland by calling for the country to carry out an independent assessment of the impacts of its tax policies on the economies of developing countries and, importantly, requested that it report back on the same in its next periodic report.
Significantly, Ireland’s human rights ombudsman also raised serious concerns over the deleterious impacts of the country’s facilitation of crossborder tax abuse in its submission to the Committee. National Human Rights Institutions are mandated to protect and promote human rights, but as state bodies with a close, legally-defined relationship to the government they often take a more conservative approach than their civil society counterparts. In the past the Irish Human Rights and Equality Commission (IHREC) has generally shied away from overt criticism of Ireland’s tax havenry, so its decision to address the issue head-on at the review is particularly significant. In its input to the Committee, IHREC stated “we are concerned that Ireland’s tax policies facilitate corporate tax avoidance and profit-shifting from low-income countries… While the State denies that this occurs, the evidence underpinning this assertion is not sufficiently comprehensive and it does not align with the issues raised by Irish and international experts.”
Rising pressure on Ireland to take responsibility for its role as a tax haven comes at a critical moment, as the country has emerged as a key blocker of progress in negotiations at the UN. Talks over the terms of reference for the new tax convention are underway following the Africa Group’s historic resolution in November last year, which effectively ended the Organisation for Economic Cooperation and Development’s six-decade dominion over international tax talks.
The UN process promises to deliver a more just and inclusive regime for international tax cooperation, in contrast to the OECD process which was widely condemned for ignoring the voices of developing countries. Some Global North countries – including Ireland – are already seeking to limit the UN talks, however.
Just a few days ago in providing input for the ‘terms of reference’, Ireland called for the new UN framework convention to prioritise consensus-based decision-making, which tends to deliver weak ‘lowest common denominator’ outcomes, rather than majority voting, which would favour the interests of the Global South.
It is to be hoped that Ireland will heed the calls of the UN Committee on Economic Social and Cultural Rights both with regard to its own fiscal policies and its participation in the UN negotiations. While the Committee did not explicitly reference negotiations over the new convention, it did call on Ireland to “redouble efforts to ensure effective implementation of the Covenant obligations in the negotiation of international agreements pertaining to fiscal policy”. These obligations include that it should participate in good faith in such spaces so as to ensure third countries can raise the maximum of available resources for the realisation of human rights within their borders.
The theme for International Women’s Day 2024 is “Inspire Inclusion”, focusing on understanding, valuing women’s inclusion, belonging, relevance, and empowerment.
Alongside this, when I started studying fundamental human rights as a masters’ student, it resonated far more deeply with me: it had meaning, it represented compassion and empathy, seeking to transform the world in the most basic of ways. It concretised the philosophy that there are certain rights that are so fundamental to our human being-ness, that they are inalienable, and worth protecting.
But back then, as a young lawyer, and today still, as a less-young consultant, the lack of strong female voices in the tax policy space is striking.
From a tax policy perspective, it is a double-edged sword that sees women feeling the pinch from two sides:
Around the world, only some 11.3% of finance ministers are female.
In tax administrations, female staff make up some 58% of staff, but only 43% of executives. Indeed, after 30 years in the business, I have only ever met two female heads of a tax administration, and I have only ever worked with two other female consultants in the tax administration consulting space.
Spanish Minister of the Economy Nadia Calviño refused to take a promotional photo at the Madrid Leaders Forum, where she was the only woman in the line-up. She noted, “We can no longer consider it normal that 50% of our population is not present,” and that she would no longer participate in events if she was the only woman present.
Impact on tax policy
The historically limited role that women have played in the tax policy and tax administration space – at a senior leadership level – continues to be evident in our tax policies today.
There are a multitude of examples of tax policies downgrading women to second class citizens. For the longest time, for instance, women were required to submit their tax returns under their husbands’ names. While some countries took an early lead in levelling the field a bit (eg Germany in 1958 and Sweden in 1971) many other countries have a relatively recent history of making women play second fiddle to their husbands (eg the UK until as recently as 1990 and France until 2013.) In South Africa, married women were taxed at a higher rate than married men, until 1995.
These kind of biases continue to exist today, as a report on tax policy and gender equality notes: in tax systems that do not account for the gender wage gap; in tax systems favouring capital income through lower rates or exemptions that inadvertently favour men; in joint or household-based taxation that discourage the second earner, typically a woman, from working, due to higher effective tax rates on their income; in VAT and sales taxes that disproportionately affect women if there are no adjustments for gender-differentiated consumption patterns; and in biases in tax incentives or credits for unpaid childcare or care duties if they do not equally incentivise both genders to participate in these roles.
As Christine Lagarde notably said, “Being surrounded by men is not something new, but it is something that is always disappointing.” Not least, perhaps, because the policies a male-dominated space have delivered have negatively impacted half of the world’s population.
A care sector that couldn’t care less
Alongside this, many women continue to be impacted by the motherhood penalty – the price we pay for choosing the welfare and wellbeing of our children over our own careers. (Not to say that there aren’t many men out there who do the same – just that women often continue to be forced to make this choice by default.)
Many women continue to be disproportionately impacted by the care burden – having to look after the frail, the sick and the otherwise homebound. Women perform 76.2% of all unpaid care work globally – 3.2 times more than men. This equates to 16.4 billion hours of unpaid care work daily, with an economic value of 9% of global GDP. Women provide an estimated 71% of informal dementia care hours globally.
An older Pew Research Center report show how mothers were much more likely than fathers to report experiencing significant career interruptions in order to attend to their families’ needs: among working parents of children younger than 18, working mothers spent 10.7 hours per week actively engaged in childcare, compared with fathers’ 7.2 hours. When asked what is best for young children, 33% said what’s best for young children is to have a mother who doesn’t work at all.
Mothers (and fathers!) should never need to make a choice between having to sacrifice their lives for the sake of caring for others. Mothers (and fathers) should never have to give up on their dreams and aspirations and financial security, just because they have to – instead – stay at home to look after a sickly toddler or frail parent or partner with dementia. In many countries, women are exiting the labour market to care when, quite simply, they should never be forced to choose between education, a job or caring for a loved one.
(To be clear: many people thrive on providing care, finding their calling in looking after others. But for them this is a choice they make. For them it is a space in which they find fulfilment. The argument here is not that care work is “less than” – far from it. It is simply that no one should be forced to become a carer simply because there is no care system.)
These biases translate into a care sector that couldn’t care less.
A Brazilian study explored the effects of tax reforms on care provision, contrasting tax incentives with direct government spending on care infrastructure. The study highlighted how public investment in care services like daycare and elderly care, significantly reduced women’s care burden and created employment opportunities, particularly benefiting those from lower income brackets. Their analysis showed how public spending on care services more effectively addresses inequalities, generating 55% more employment opportunities for women.
Taxation can provide sustainable funding to public caregiving systems that redistribute and reduce care burdens. Every second, we lose a nurse’s yearly salary to a tax haven. St. Andrews University has estimated that the taxes we lose to tax havens could employ some 1,950,000 additional nurses every year. If governments cracked down on tax abuse, 31.9 million more people would have access to basic sanitation, 15.2 million more people would have clean drinking water, and 3.2 million more children would be able to attend an extra year of school. Every single one of these dynamics would look significantly different if our governments had the tax revenue to spend on them. These are all measures that would quantifiably improve the lives of a multitude of women across the world.
Something needs to change
A recent OECD report gives some hope, with gender equality being recognised as an important consideration in tax policy design by a majority of countries, with around half implementing specific tax reforms to enhance gender equity. However, there’s a notable divide in the availability and use of gender-disaggregated data for policy analysis. The report suggests a growing awareness among countries of the potential for tax policies to inadvertently perpetuate gender disparities, alongside a recognition of the economic benefits of reducing gender-based discrimination. The report emphasises the need for targeted research to further understand the gender implications of tax systems, suggesting improvements in data collection and analysis to support evidence-based policymaking. It advocates for the removal or adjustment of tax policies that exacerbate gender bias and encourages the exploration of tax settings that could reduce gender inequalities.
A fundamental change is already underway in terms of moving towards more inclusive tax policy development, with discussions on a UN-backed tax convention. As that process unfolds, the world has an opportunity to bring greater equity to our tax policies, in a way that is mindful of the impact these policies often have on those who aren’t seated around the table.
What if we all paid our fair share?
This is not the world we want – philosophically, or practically.
On International Women’s Day, the call is a simple one:
The very fundamentals of our human-ness are at stake. Because there are no fundamental rights, without fundamental fairness in how taxes are paid – by men, and by women.
Preparations are well underway for this March’s international policy research conference focusing on how a UN tax convention can help to address inequality in Europe and beyond.
Held at the Paris School of Economics, the two-day conference is a collaborative event convened by some of the organisations leading the advocacy efforts to garner support for a UN tax convention in Europe: the European Network on Debt and Development (Eurodad), EU Tax Observatory (EUTO), Global Alliance for Tax Justice (GATJ), ICRICT (Independent Commission for the Reform of International Corporate Taxation), the Tax Justice Network, and World Inequality Lab.
The conference brings together researchers from across Europe and beyond, and includes a line-up of fantastic papers, speakers and discussions: on rich-world privilege, power dynamics in global governance, the relationship between monopoly power and tax abuse, the impact of reforming low tax jurisdictions, addressing capital concentration and wealth flight, tax justice considerations in addressing climate financing, and exploring the core tenets of international tax cooperation. In short, all of the reasons why we need to to support a UN tax convention.
The conference marks a timely and important milestone: there is not yet an extensive body of literature on which policymakers and negotiators can readily draw to develop a comprehensive agenda, either on specific issues or on the eventual governance structure. The conference will bring together and host contributions towards addressing that need.
Systemic inequalities and the move to a more inclusive UN framework
The conference – and the broader move towards a more inclusive tax policy development framework – comes against the backdrop of people across Europe facing dramatic income and wealth inequalities. A major component of these uncontrolled inequalities lies in the failure of governments to tackle tax abuse by elites and major corporations. As a result, tax systems across the continent fail to deliver direct redistribution to damp down extreme wealth and incomes, and also fail to generate the revenues needed to tackle poverty.
The failures in international rules on tax and financial transparency represent a major obstacle to progressive taxation in countries at all levels of per capita income, and contribute to needlessly high levels of within-country inequality. In addition, the failures are responsible for deeper inequalities in taxing rights between countries, resulting in systematically higher tax losses for lower income countries as a share of current tax revenues.
Establishing an international basis for more effective national taxation is a crucial step to curbing inequalities around the globe.
Despite a decade of purported global tax reform, the current tax rules fail to address inequality both within and between countries.
At the end of 2022, the member states of the United Nations unanimously passed a resolution to begin intergovernmental discussions on proposals for a new international framework for tax cooperation under UN auspices that could open the door to major reforms addressing the shortcoming of the international tax system.
European countries not engaging in the process
European countries now have a major opportunity to take part in the negotiation of a UN tax convention that could make powerful strides against the scourge of tax abuse, which contributes to harmful inequalities across the continent and beyond. But despite public demands for progress against tax abuse, there are serious questions over whether European governments will engage fully in the process – many of whom opposed the 2022 vote at the UN. Part of the explanation for their opposition may lie in the important role some European countries play in facilitating cross-border tax abuse (even though citizens of these countries demonstrably stand to gain from change.)
Some OECD members have been particularly vocal in opposing the move to more inclusive tax policy development (in particular the US, Japan and South Korea). In Europe, which dominates the OECD’s membership, there has by contrast been an almost complete absence of engagement.
Of the 38 OECD member countries, 22 are EU members, and 3 more are in the process of accession – making their voice an important one. Unfortunately, they have been almost silent, despite being among the largest losers from cross-border tax abuse – and despite often presenting themselves as drivers of change.
The European Parliament has called for the EU and its member states to engage fully in the process to negotiate a UN tax convention – so far to no avail.
Reform options
There are three key questions to resolve over the coming period, which also form the backbone of the conference:
What modalities should be adopted for the negotiations?
It seems likely that an ad hoc intergovernmental working group will be established this year to make decisions on issues like the modalities to be adopted for the negotiations. The UN Secretary-General’s report points in this direction, while some independent analysis indicates a range of possible paths to agreement.
The substance of the convention
A second question revolves around what the appropriate governance structure would be for future rule-setting, and which specific areas should be addressed within the convention or its protocols.
Some tentative work is beginning to shape the discourse, like earlier work by Vito Tanzi, outlining the broad scope of potential responsibilities; Ryding’s work which provides a draft text for the convention; and Chowdhary and Picciotto’s exploration of the opportunities offered by a framework convention.
How will OECD member countries respond to the shift to an alternative framework?
With the OECD having largely led the way in setting international tax rules since the 1960s, the third question relates to how its member countries – including notably those from the EU – will accept the shift to a globally inclusive alternative framework.
If they oppose it, what are the likely outcomes? Given the central role European countries and their dependent territories play in cross-border tax abuse, what are the likely outcomes of an agreement that includes most European countries, as opposed to one that goes ahead without them?
Improving the prospects for European engagement in a UN process
The underlying emphasis of the conference is on improving the prospects for European engagement in a UN process that can support meaningful progress against tax abuse in and by European countries and to curb inequalities within and between countries.
The conference itself marks one of many milestones on the road to a more inclusive, representative tax policy development space – but an important one. It is part of broader advocacy efforts aimed at securing broader support within the EU in particular for a UN tax convention, and for fairer, more equitable global tax policies. The Paris conference brings with it one of the most important tax conversations we should all be having right now!
After consulting with civil society organisations and other stakeholders, the IMF published late last year its new strategy focusing on anti-money laundering and combating the financing of terrorism (AML/CFT). This will underpin its engagement with countries across all of the IMF’s functions: surveillance, financial sector assessment programs, lending and capacity development. The publication of the new strategy was accompanied by five analytical papers that provided a deep dive into issues such as illicit financial flows and financial stability, along with the launch of an IMF website on anti-money laundering, and a blog arguing that financial crimes hurt economies and must be better understood and curbed.
The Tax Justice Network engaged extensively in the consultation process that led to the adoption of the new strategy, and advocated for ambitious policies at various panels during the 2023 IMF/WB Spring and Annual meetings. Here are our key takeaways:
Positive developments
Focusing on big financial centres
One of the key highlights of the new strategy is that the IMF aims to take more advantage of its strengths and its mandate in approaching its anti-money laundering goals. It will “emphasise the macroeconomic implications of financial crimes on the fiscal, monetary, financial system, and structural channels including from cross-border illicit financial flows and related spillovers”. This hopefully means that, rather than following the bias of other organisations that go hard on low income countries and easy on large financial centres, the IMF would now be expected to look more seriously at tax havens and secrecy jurisdictions that channel illicit financial flows through their conduit vehicles (eg British Virgin Isles shell companies) as well those destination jurisdictions where illicit financial flows end up being hidden to escape local and foreign authorities (eg Swiss and American banks, UK and Dubai real estate, Cayman hedge funds, etc). This is a success of our advocacy with the IMF, to follow the approaches of our Financial Secrecy Index and Corporate Tax Haven Index which also point fingers at the major financial centres that are among the worst offenders in terms of facilitating illicit financial flows.
Disregarding typical “grey” and “blacklists” which target developing countries
Another highlight is the idea of “avoiding cross-conditionality” in the measures the IMF recommends to countries. This suggests a departure from the typical assessments based on the findings of the Financial Action Task Force (FATF), which fall short on targeting safe havens for money launderers and criminals. This means that the IMF would exercise its own judgment based on macro-criticality and not automatically be triggered by the Financial Action Task Force’s “grey” or “black” lists in its decision-making processes. This is another example of our advocacy to counter the narrative on those who are most responsible for illicit financial flows.
Further opportunities for improvement
The need to be explicit on beneficial ownership transparency
The IMF should go beyond the Financial Action Task Force’s loopholes and ask for public access to beneficial ownership information and registration of trusts , especially where the jurisdiction in question plays a large enough role that their opacity poses a global risk. While the IMF has already started demanding public access to information on beneficial ownership in the context of COVID-19 procurement, the expectation is that full public access for at least high-risk sectors (eg extractive industry, real estate) will also become policy at the IMF. Effective beneficial ownership transparency is the best way to tackle the spillover effects of financial secrecy.
Local cooperation and synergies (eg tax and anti-money laundering)
Keep consulting with civil society when developing international standards
When the IMF provides feedback to other international organisations on international standards, it should push for more ambitious norms. To do so effectively, it will be essential for the IMF to continue engaging with civil society organisations.
Move to viewing tax avoidance as an abusive practice
The new anti-money laundering strategy should have explicitly covered cases of tax abuse (eg via Dutch, Irish or Luxembourg vehicles). Unfortunately, the IMF background paper on illicit financial flows appears to take a flawed narrow OECD approach, which – contrary to the formal statistical definition adopted by the UN, which hosts the global target to reduce illicit flows – excludes tax avoidance by multinational corporations.1 While we welcome a renewed engagement from the IMF on illicit financial flows and encourage further work in this area, it would be important for the IMF to follow the UN approach. This means that any upcoming IMF policy on illicit financial flows would also cover tax abuse (that is, both tax evasion and tax avoidance by multinationals, the latter of which is sometimes legal and sometimes not), while also pushing for transparency in this regard.
Conclusion
The IMF’s new anti-money laundering strategy is promising – and the fact that the IMF engaged extensively with civil society in developing it is a particularly positive and welcomed development.
The real test will lie in effective implementation. The IMF is a big, global institution. Changing the mindset of staff will be a challenge, especially for economists more worried about dated notions of “competitiveness” than the fight against money laundering and other illicit financial flows. One idea could be to take the transparency of country conditionalities which the IMF is already practicing one step further. While conditionalities are already published in the specific country documents, the centrally enlisted repository is not as user-friendly, making research about the IMF’s impact and consistent monitoring for civil society organisations rather challenging. With a small change of external presentation of already existing data, significant progress could be made. In addition, the IMF should discuss proposed conditionalities with key stakeholders, including non-governmental ones, in advance of negotiations with countries. This would strengthen democratic processes by ensuring the potential for broader political engagement on key government decisions, and also protect the IMF itself from being wrongly made a scapegoat for unpopular policies.
As the IMF has recognised, the cost of failure is too high. The Tax Justice Network will continue to seek opportunities for engagement and knowledge sharing, and will keep a close eye on how the IMF implements and delivers its new anti-money laundering strategy.
Last month, as the ultrarich gathered in Davos, Switzerland, Oxfam released its annual report on global inequality: these are boom times for billionaires while much of the world is being left behind. Collectively, billionaires have grown $3.3 trillion richer since 2020. The five richest men have seen their fortunes more than double. At this rate, we expect to see the first trillionaire within a decade. Unfortunately, for most of the world, the picture looks very different. Following a pandemic that devastated lives and livelihoods, as well as a prolonged cost-of-living crisis, climate breakdown and conflict, the collective wealth of five billion people has fallen and the wages of nearly 800 million workers have failed to keep up with inflation.
We’ve lived through a war on tax
In this year’s report we focus on how corporate and monopoly power sit at the heart of this, creating and sustaining a new global gilded age. Tax is central to this. We focus on the intimate connection between taxation, corporate power and inequality, and on how a “war on taxation” has benefited companies and their wealthy owners, but deprived societies of resources needed for inequality-busting policies.
We look at the collapse of taxes on corporations and their owners in recent decades. Statutory corporate tax rates have fallen in 111 out of 141 countries between 2000 and 2023, and have more than halved in OECD countries since 1980. Of course, tax havens, widespread use of wasteful tax incentives, and aggressive tax planning has resulted in actual tax rates far lower than the statutory ones, and often closer to zero. Globally, the actual corporate tax rate has dropped by a third from 1975 to 2019, from 23 per cent to 17 per cent. We also look at the very low tax rates on the types of income that shareholders receive from corporations, like dividends and capital gains. In OECD countries, the average top rate for dividend income has declined sharply since 1980, and in some countries it is simply not taxed. Capital gains, often the most important source of income for the wealthiest, are not taxed at all in one in five countries.
Corporate tax dodging deprives everyone of resources
Our report breaks down how this collapse has turbocharged inequality. It has robbed governments of revenue to spend on social protection, public services, and other programs and policies that address inequality. These effects have been inflicted with great global injustice, with many global north countries extracting wealth but paying little to no taxes, and global south countries disproportionately affected by corporate tax avoidance. It is also a gender issue: women are particularly affected by corporate tax dodging, as they are the primary users of public services and the main providers of unpaid care work (the demand for which increases to fill gaps left by declining public provision). Women are also especially impacted because they are disproportionately employed in the public sector.
Tax cuts for the richest
Corporate tax cuts haven’t just deprived societies, they’ve benefitted the richest. Corporate income tax is progressive. Most of its burden falls on forms of income, like dividends and capital gains, that are disproportionately received by the wealthy. This is because corporate ownership isn’t equally distributed but is instead highly concentrated among the richest. The fortunes of many of the world’s wealthiest people consist almost entirely of holdings in the corporations they’re associated with. Globally, the top 1 per cent hold 43 per cent of assets. This is why corporate tax cuts are essentially tax cuts for the rich. Economists Emmanuel Saez and Gabriel Zucman have shown, for example, that the massive fall in taxes paid by the richest in the United States was significantly driven by cuts to corporate taxes.
There is cause for hope
The tax justice movement has shown the way. There are practical, popular steps governments can take today to fight back against corporate tax dodging and address inequality. These include increasing taxes on corporations and on the superrich – something even millionaires and billionaires are calling for. At Oxfam, alongside many others in civil society, we support permanent wealth taxes, taxes on windfall profits, and steps to curb tax avoidance by corporations, like public country by country tax reporting. A modest wealth tax on the world’s multimillionaires and billionaires could generate US$1.8 trillion a year globally. The G20, under Brazilian leadership, can champion a new global consensus to tax the world’s richest individuals. After a historic vote, and despite the lamentable opposition of a number of rich countries, the UN has adopted a plan to establish a much-needed framework convention on tax, with 125 countries backing a measure led by African countries to introduce fairer, more equitable tax policies. Solutions like these are how we can end extreme inequality and fulfill the rights of all.
We’re happy to announce the launch of a brand new website for our growing family of Tax Justice Network podcasts. As you’ll see, it’s bright, it’s colourful, and you’ll find it much easier to navigate. All podcasts are also available on most podcast apps.
We currently have five monthly podcasts and one new weekly podcast, all independent productions with their own hosts and producers bringing tax justice and financial transparency debate to their region. We’re planning more… As mentioned, they’re all available on most podcast apps. Here they are:
The Taxcast: (in English) Launched in 2012, the Taxcast is the Tax Justice Network’s longest running monthly podcast, hosted and produced by me, Naomi Fowler (and now Jo Barratt). Find it on your podcast app here or subscribe by email to me: Naomi [at] taxjustice.net
Justicia ImPositiva: (in Spanish) Launched in 2016, with Marcelo Justo and Marta Nuñez, this monthly podcast serves Latin America and is broadcast by radio stations across the continent. Find it on your podcast app here. Un podcast mensual sobre escándalos y análisis inevitables de corrupción, paraísos fiscales, evasión fiscal y secretos financieros.
الجباية ببساطة (in Arabic) Launched in 2018, our monthly podcast in Arabic is hosted and produced by Walid Ben Rhouma and Norhan Mokhtar and serves the Arab speaking world.Find it on your podcast app here.
بودكاست شهري عن الفساد والملاذات الضريبية والسرية المالية من قبل شبكة العدالة الضريبية.
É Da Sua Conta: (in Portuguese) Launched in 2019, this monthly podcast is hosted and produced by Grazielle David and Daniela Stefano and serves Lusophone countries. Find it on your podcast app here. Um podcast mensal sobre como consertar a economia para que funcione para todos.
Impôts et Justice Sociale: (in French) Launched in 2019, this monthly podcast is hosted and produced by Idriss Linge, also a Tax Justice Network researcher, and serves Francophone countries. Find it on your podcast app here. Un podcast mensuel sur les scandales essentiels et l’analyse de la corruption, des paradis fiscaux, de l’évasion fiscale et du secret financier par Tax Justice Network.
The Corruption Diaries: (in English) In this brand new weekly podcast, we take listeners on a journey through the eyes of anti-corruption veterans who were on the frontline of key events that have defined our world today. Find it on your podcast app here. In Series 1 we sit down with leading white collar crime lawyer and Tax Justice Network senior adviser Jack Blum who tells us about his life’s work during a period of huge geopolitical change and transformed global tax and financial systems. From the BCCI scandal (Bank of Credit and Commerce International), to Panamanian dictator Noriega’s cocaine trafficking, to Lockheed Aircraft’s overseas bribes – Jack was there. Hosted by Naomi Fowler, and produced by Naomi Fowler and Jo Barratt.
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