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.
Welcome to the latest episode of the Tax Justice Network’s monthly podcast, the Taxcast. You can subscribe either by emailing naomi [at] taxjustice.net or find us on your podcast app. All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. You may have noticed we’ve rebranded all our podcasts, the new podcast website is here.
On the Taxcast this month: People power for tax justice is on the rise like never before. We kick off 2024 with inspiring stories on campaigns for tax reform from around the world: strategies, successes, limitations, and what we can learn from the first in-depth studies of their kind by International Budget Partnership.
Plus: Malawian poet and Senior Tax Investigations Officer Robert Chiwamba pays tribute to tax collectors everywhere. You can watch him perform We Will Count Them here.
Transcript of the show is here. (Some is automated)
Guests:
Robert Chiwamba, Malawian poet and Senior Tax Investigations Officer (his youtube site is here, WATCH him here performing his poem We Will Count Them)
Produced and presented by Naomi Fowler of the Tax Justice Network.
~ #139 People Power
The last 10, 20 years have seen an important shift. Civil society has started learning this new language, these new skills, and has started engaging in debates around taxation.”
~ Paolo de Renzio
Further reading:
A Taxing Journey: How Civic Actors Influence Tax Policy (open access – free pdf from International Budget Partnership and a summary paper on that work here
Naomi Fowler: Hello, and welcome to the Taxcast, the Tax Justice Network podcast. We’re all about fixing our economies so they work for all of us. I’m Naomi Fowler. Before we get started, a bit of podcast news for you. We’ve just launched a brand new podcast website, and you may have noticed the new Taxcast logo. The new website’s for all our sister podcasts too, so, the Taxcast and our monthly podcasts in Spanish, Arabic, French and Portuguese – all independent productions bringing tax justice to their part of the world. All of them are on our new site on podcasts.tax justice.net For the Taxcast, just as before, you can go straight to it on thetaxcast.com If you’re still seeing the old website, be patient, it’s all settling in still as it goes live. Anyway, on that website, you can get more information and further reading on every podcast we release right there. And as always, you can subscribe to the Taxcast by emailing me, Naomi[at]taxjustice.net
So, on the Taxcast this month, when it comes to tax justice, people power is on the rise like never before. We’re going to kick off 2024 with the first in-depth case studies on campaigning for tax reform from around the world. Strategies, successes, limitations, and what we can learn from it all. And none of these advances in tax justice would be possible without the unsung heroes, our tax collectors. They’re often invisible, often badly paid, often not recognized or respected for their work. Yet, they’re as important to helping our societies and human rights function as nurses, teachers and carers. Sometimes their work puts them in great danger. Some of them have been taken from us way before their time. And on the Taxcast this month, we have Malawian poet Robert Chiwamba here with us to perform his poem, We Will Count Them. Robert himself is a tax man. He works for the Malawi Revenue Authority as a Senior Tax Investigations Officer. Here he is, paying tribute to tax collectors around the world, past and present.
Robert Chiwamba: We will count them. One by one, name them. As they work without appreciation, we will appreciate them. Tax men. Men and women who are least loved. Risk-takers who know no peace. Insults raining on them like rains in the rain forest. But we will appreciate them, one by one count them as they work without appreciation.
We will recognize them. Tax men, men and women who have been branded thieves, development champions who have been convicted in public opinions courts without hearing their side of the story, and ambassadors who have risked it all for the sake of their country’s prosperity.
We will name them. One by one, appreciate them, as they work without being loved, we will recognize them, tax men. Men and women who are at the mercy of politicians, often given instructions contrary to the tax law, threatened, insulted, unrecognized, unappreciated, but we will recognize them, one by one appreciate them, as they work without recognition, we will recognize them.
Tax men, men and women who have carried us through and through, heroes who have supported our ailing economies, champions of fights against illicit trade, drivers of our economies, we will celebrate them, one by one name them, as they work without appreciation, we will recognize them.
Tax man, today’s your day. Pop the champagne, light your candles. We will drink to your prosperity, feast to your good health, dance the night off to your protection. Without tax, there’s no development. Without tax men, there’s no tax. Don’t despair, don’t relent. Be proud, be cheerful. We love you. We will celebrate tax men, one by one name them as they work without recognition, we will appreciate them.
Naomi Fowler: Robert Chiwamba, spoken word poet and Senior Tax Investigations Officer. Thanks. I’ll put a link to a video of him performing that in the show notes.
So, tax justice campaigns are on the rise around the world, and sometimes a surprisingly small group of determined people can do amazing things. Here’s a nice example from Greg Leroy of Good Jobs First in the United States. Good Jobs First is a corporate subsidy watchdog, and in their 25 years of campaigning, they’ve created things like the subsidy tracker, violation tracker, and a tax break tracker, all providing data that has enabled different groups to claw back a lot of public money. Here’s Greg.
Greg Leroy: Good Jobs First is the leading reform group within American economic development. A good example of how our data is empowering activists: nine years ago, some religious, faith-based activists in Louisiana discovered our data about individual deals with chemical plants, oil refineries, worth tens of millions and hundreds of millions of dollars, sometimes creating no new jobs at all. And together with the new governor that took office, they want an executive order and a bunch of reforms that have overhauled the state’s big property tax abatement program so that today, more than 300 million dollars per year that used to go into corporate bottom lines is going back to schools, back to libraries, back to infrastructure. And that number is headed toward 1 billion per year as the reforms play out. That’s progress.
Naomi Fowler: Brilliant! Tax justice campaigning can raise millions, even billions, and that changes lives.
Paolo de Renzio: A few years ago, we decided to start looking at the role that civil society can play in shaping tax policy with a particular focus on making tax systems and taxation more equitable.
Naomi Fowler: This is Paolo De Renzio, formerly Senior Research Fellow with the International Budget Partnership. He’s now Senior Lecturer at the Brazilian School of Public and Business Administration of Fundação Getúlio Vargas in Rio de Janeiro.
Paolo de Renzio: And one of the first things that we did was literally scout around, look around and see, you know, what are some interesting examples of civil society organizations engaging, trying to influence, tax policies in their country, in an effort to make tax systems more equitable. But successful stories of civil society campaigns there, there were not many of them and they had not been looked at in a lot of detail. So we said, as part of our internal learning process, we should definitely go out and collect these stories, collect stories from what these groups did, why they did it, how they did it, when they did it, with whom they did it so that we can start accumulating some knowledge and some lessons And then as we went along, you know the purpose of this exercise became much bigger as we started really uncovering very interesting material about these different campaigns, and the strategies and the narratives and the capacities and so on that these organizations deployed.
Naomi Fowler: So, the International Budget Partnership has produced a book, A Taxing Journey, How Civic Actors Influence Tax Policy. It’s open access, so it’s available online to download for free. I’ll put the link in the show notes.
Paolo de Renzio: I would say telling these stories and seeing what lessons we can learn from them had two main objectives. The first one is to inspire others to basically follow in the footsteps of these pioneering groups, you know, trying to distill the key lessons that others can learn from. And as you know, the movement is clearly expanding. There’s more and more groups in different countries who are engaging in this kind of work, so providing them with lessons, stories that they can get inspired by, examples of how different organization did things, to try and have a menu of options that they can use as they navigate this sort of new and often difficult territory.
The second objective goes beyond other civil society groups And it’s really trying to inject in the policy debates around tax reform in developing countries the idea that civil society can play a role and that civil society deserves to be recognized as a legitimate actor deserves to receive support from different actors within the country from donor agencies outside the country.
So, in the book, we also sort of include some lessons, not just for other civil society groups, but also for governments and for international agencies of different sorts, be it international NGOs that support this kind of work like Tax Justice Network, but others like Oxfam, the big NGOs, etc, and then official donors, both, let’s say bilateral, multilateral, but also philanthropic foundations that increasingly support this kind of work, so what does it mean for donors to, more effectively support the civil society work in this area? So internal learning, inspire other organizations and provide lessons for other actors like governments and donors.
Naomi Fowler: There are seven case studies in the book, and I’m going to run through them quickly: in Guatemala, the campaign to reform the tax administration after a huge corruption scandal, all the way up to the president and the vice president.
There’s France and gilets jaunes or the yellow vests and their social media driven revolt against poorly thought out environmental taxes and less well remembered with that is that part of all of it was Macron’s proposal to replace the wealth tax.
In Kenya, there’s Tax Justice Africa’s historic legal challenge to a double taxation agreement the Kenyan government signed with the tax haven of Mauritius. We covered that on the Taxcast.
In Mexico, a decade long fight to get transparency on tax amnesties, which turned out to benefit only a tiny section of wealthy Mexicans.
There’s a fascinating one in the Philippines with a campaign to increase so called sin taxes, so taxes on things like tobacco and alcohol, which helped to significantly expand health care.
In Uganda, the opposition to a regressive 1 percent tax on the value of mobile money transfers and a tax on the use of social media.
And in the United States, campaigns in three different states to increase income taxes on the wealthy.
Naomi: So, do you have a particular favorite that you really like?
Paolo de Renzio: That’s a tricky question, I mean, all of them are very interesting and fascinating in their own specific way. The ones that I found, let’s say, most inspiring, there’s two of them, Mexico and the campaign that Fundar spearheaded, and then sort of kept going for more than a decade, trying to, at the beginning, improve transparency levels around tax amnesties. So you know, whenever governments basically pardon tax and cancel tax debts, and there was this sort of recurring initiative new governments would undertake with the excuse of increasing revenue collection, but then in the end, it became just favors that they were handing out to a bunch of people.
And so they focused on identifying tax amnesties as the giving of what they call fiscal privileges, which I think is quite an interesting way to sort of frame the issue. And eventually it became much more than just the transparency campaign, it became something around fair taxation and the fact that so many people and organizations, business, get unfair advantages from the tax system, which they don’t really need. And that sort of makes the tax system more regressive and less fair. The interesting thing is that Fundar started off this campaign as basically, as legal, so going through the courts, trying to force government to publish information about tax amnesties and the beneficiaries. But then over time, sort of started adding different tactics, different strategies, engaging with different actors, combining their sort of legal action with technical analysis, with building coalitions, with using social media in very interesting ways, taking advantage of specific opportunities when there were changes in government, etc so that the ways in which the campaign developed over time, and became much more multifaceted and requiring them to basically develop and deploy new and different capacities was, I think, a fascinating example of how civil society can, you know, reach impact by building long term capacities and efforts to target specific tax reform initiatives.
The other one is the one in the Philippines, which possibly was the one with the with the biggest impact you could say, because Action for Economic Reforms is actually quite a small outfit but with a very driven staff that combines different kinds of technical, political communications capacities, and they basically managed to overcome the resistance of the most powerful lobby in Asia, the tobacco and alcohol lobby, by convincing the government to introduce so-called sin taxes on the use of on the consumption of alcohol and tobacco, and through that, generating revenues that funded a huge expansion in health coverage. Again, so the, so very interesting, so very important impact which was reached again with a multi-pronged campaign, they used a vast array of entry points, working directly with the government, working with health sector organizations that were interested in sort of highlighting the negative impact of alcohol and tobacco use, working with Congress in a very strategic way, again, the fact that when a government changed, you know, they were still, they found ways to work with the new government, even if it was ideologically quite distant from their own position.
So really very fascinating ways to think about tax tactics and strategy and deploying different capacities to make sure that the campaign was kept on track and reached maximum impact. So those two, I think would be the ones that were most inspiring for me.
Naomi: Yeah, really clever, really clever. So you make the point in the book that the lack of involvement of kind of regular citizens and civil society historically in tax policy making and decisions – but how that is changing and interest in tax and tax justice and the activism in that area is really growing. I mean, I’ve definitely seen that in the years since I started with these podcasts in 2012, when it was really a minority interest, so I mean, there’s definitely been a lot of quite successful building up of tax as the friend of the people rather than the enemy of the people, so I’m just wondering what kind of changes you’ve seen in your time looking in this field that have demonstrated this change in interest and activism around the area of tax?
Paolo de Renzio: Yes, so I think, you know, historically, if you sort of take a long historical view, it’s very clear that citizens and different types of civic actors have had limited engagement and limited opportunity to really engage with tax reform, But, you know, I definitely think that the last 10, 20 years have seen quite an important shift and I think it comes from a few different directions. There’s been an increasing recognition and debate in international development circles about the role that taxation can play in promoting development, there’s been a lot of action around international taxation reforms, you know, where Tax Justice Network, of course, has been a very important actor, which have also brought in civil society actors in different countries through the regional networks, etc. Civil society has started learning this new language, these new skills, has started engaging in debates around taxation.
What we found was that debates and action on international taxation reform moved faster than country level campaigns and country level debates, partly because of different political context and political realities within many developing countries. But I think that is also now changing and the skills that civil society actors CSOs have gained by engaging with international taxation reform debates are now gradually being transferred to more domestic issues and domestic initiatives. There’s a growing interest by international NGOs and donor agencies in supporting this kind of this kind of work, so there’s basically, I think, a number of different factors that are coming together to generate, to create a more favorable environment for civil society groups to engage in, in this kind of work.
That doesn’t mean that all of the efforts would be successful, there’s still lots of political resistance, still many problems with access to information, with technical skills and capacities within civil society and so on and so forth, which we recognize in the book, but certainly, quite an important shift that basically means that this work will continue to grow in the future. So hopefully we will see more groups getting engaged, more, interesting stories of impact, more lessons that can be learned about how to make this work more effective.
Naomi: Yeah, yeah, I think so. And so in terms of what works best in the most sort of successes that you’ve looked at – obviously, success is an interesting word and tax reform is a battle of ideas, and it’s about how we talk about it in the first place and we make that an accessible subject rather than something that people feel they don’t, they’re not going to be able to understand and it’s not going to make any difference to their lives, when in fact the opposite is true so, which of the case studies would you say that you looked at was the most successful in terms of changing the narrative on tax justice, do you think?
Paolo de Renzio: We could see basically three main types of narratives that civil society groups deployed to sort of make the case for tax reform. One, and probably the most common one, given that we were mostly looking at cases of of campaigns that were aimed at making the tax system more equitable, you know, issues around fairness, justice, equity, different ways to basically make the argument that tax systems were working in favor of wealthier individuals and businesses, and were actually working against poorer, lower income, more marginalized groups is something that we see across a number of the different of the different cases.
So, you know, from the Uganda campaign on the regressive nature of the taxes that were introduced by the government on mobile money transfers and social media use, you know, that we’re clearly working against, especially, for example, in the case of mobile money transfers, rural people who use their mobile phones to move money around much more than people who work in the big cities and have access to the banking system and have bank accounts and so on.
As I said, in the case of Mexico, Fundar, calling tax amnesties fiscal privileges and showing that basically those who were getting away with not paying taxes were definitely not people who needed those tax breaks, basically. So there’s a range of very interesting ways in which civil society groups use this argument of justice, equity, and fairness in different ways to make the argument for, for tax reform.
There’s a second set of narratives that were around the need for governments to raise more revenues to finance basic services and to be able to realize human rights in different ways. So the issue in the Philippines, for example, as I said, around finding financing for universal health coverage, in the United States, a number of campaigns were, you know, very clear in terms of, you know, we’re going to raise more money from rich people and we’re going to invest it in education and infrastructure, which are sectors that are sort of lagging behind and that are not able to sort of cover the costs of these important services. The issue of earmarking in technical terms is sometimes controversial, but it works really well from a narrative standpoint. If you’re able to show people that, you know, taxes are paid to finance public services rather than just to sort of disappear into a black into the black hole of government machinery, so it was interesting to see how different groups used that narrative.
And the third and final one is around transparency and ensuring that corruption does not basically eat away at the money that citizens contribute in taxation. So for example, the Guatemala case is very much about making the revenue administration agency more transparent, more accountable, and this was done right after a big corruption scandal where very senior people in the government, including the president and the vice president, were forced to resign because of schemes that they had concocted basically, to siphon money out of the revenue administration agency, you know, big focus on transparency and anti corruption measures.
Mexico, again, is a case in point where there was this decade-long battle to, force the tax administration to release the names of the beneficiaries of tax amnesties, which they very strongly resisted for a long time.
So these three sets of narratives are the ones that we identified as being used across the different cases, which we think can provide an interesting menu of options for groups that are interested in engaging in this kind of work, you know, depending on the type of tax, the kind of tax or the kind of campaign that people are interested in working on, then there’s a range of possibilities there in terms of a language that works, stories that work ways in which you can turn the technical language of taxation into something that people can relate to that can be used in in the media or can be used in social media for people to more easily connect and understand with the issue and as a consequence of that, support it.
Naomi: Mmmm. Yeah. And it’s – so many very well embedded popular misconceptions about tax, you know, low taxes stimulate the economy and the wealthy people are the wealth creators and they must be kept as wealthy as possible. And they’re really well embedded so it’s a long journey to try to change those stories that society tends to tell itself, but then one of the things that was really interesting in the book was about strategy. You were saying that the most successful campaigns you looked at used multiple strategies.
Paolo de Renzio: That was also another very interesting, very interesting aspect of the analysis that we did. The more successful campaigns were really multi-pronged strategies that brought together technical analysis and technical publications with direct engagement with executive, with building broad coalitions of civil society actors that could, you know, put more pressure on the government, working with the media, trying to work on these narratives and this messaging, working with parliaments and parliamentarians to create better ways to hold the government accountable.
Sometimes we had the sense that using multiple strategies was not necessarily something that was, you know, planned. It was more like a trial and error as these organizations were trying to make their point and achieve impact, trying anything and then seeing what stuck, what worked, but still, the ways in which they kind of went about identifying different entry points, developing different tactics over time, trying to see what worked, what didn’t work, what was worth investing more in and what might have been something that they didn’t have either enough capacity to cover, or didn’t have the right allies to basically carry forward and so on, was definitely a very interesting part of what we found.
So the two cases Mexico and the Philippines and I would also add the case of ECEFI in Guatemala and their campaign to reform the Revenue Administration Agency were the ones that sort of best provide the best picture of these purposeful, multi-pronged strategies that, that, you know, really try to push the issue in many different ways, and depending on where the context allowed more space.
You know, at a specific point in Guatemala, for example, there’s this corruption scandal that happens. They had had been doing work on, revenue administration reform quite some time so they had something ready that they could put in the media, bring to the table sort of, you know, build some momentum around. Then when there’s an election with the change of government, immediately they sort of go and work with new Congress people, new members of Parliament, providing technical input into the parliamentary debates around the new legislation that they were pushing for, so at the same time they were finding, you know, super interesting alliances outside of government. They worked with indigenous groups at local level. They worked with business associations at the national level, always trying to find where the overlap, where the useful overlap existed that they could utilize to basically push for their issue, push for the kind of reform that they thought was the best one for the country.
Yeah. So, the more successful campaigns were the ones that had multi-pronged strategies and worked on different fronts. At the same time you know, also recognizing that not always everything needs to be done. So, for example, social media campaigns in some cases worked really well, in some other cases that didn’t really make much of much of a difference. So there’s also that capacity to recognize when something is not working so that you sort of pull back resources and put them where they can be more impactful.
Naomi: Yeah. Adaptability. And they also had in Guatemala this really interesting political opportunity you could say, because there was such a big scandal over there with La Linea. it’s really interesting how there are occasions in the case studies where perhaps a campaigning group aligned too closely with the political opposition and that in some ways limited the success of their campaign. And the kind of tribalism that can come into play sometimes with campaigning is a really interesting one, and the type of bridges that you can build are very often quite surprising, you know, so you can come at tax campaigns from all sorts of positions, so you have to be really as wide and broad as possible. Even people who work in professions that you would not think, and even politicians who are ideologically coming from such a different perspective, there are meeting places there that can be used to progress particular policies in ways that, you know, if you’re too restrictive in the way you think about change it can limit the success of campaigns.
Paolo de Renzio: Yes, in many ways the issue of strategies is very interlinked with the issue of coalitions cause because yeah, whenever you’re working on, you know, a different part of your campaign or trying to use a different entry point to influence government policy, then there’s a different type of alliance that you need to build, there’s a different type of coalition that you need to sort of bring together to, you know, strengthen your position vis a vis those who resist the reform. And it is very interesting, in fact, across the cases to see how different groups went about building these alliances, these relationships, these coalitions very much across the spectrum, you could say, of actors that might have a role to play in tax reform. And this goes from, you know, working directly with different parts of government where these organizations could show that they could provide interesting technical inputs into even the inner policy workings of the government, you know, in many ways, building the capacity of government to think about policy reforms from the inside.
So we have clear examples – of Action for Economic Reforms in the Philippines, built very close collaboration with the reform unit in the minister of finance. We have FUNDAR in Mexico building the capacity of the institute for access to information, which is sort of the guardian of transparency within the country, helping them think about some of the positions that they developed over time with regard to tax transparency, for example.
So, you know, direct linkages with government, but also building alliances with different oversight actors from supreme audit institutions and parliaments and, you know, civil society is quite a broad field and there’s all kinds of people representing, or claiming to represent different groups with very different ideological standpoints with very, very different views on taxation and other aspects of government policy. So, really going out there and trying to find you know, all of all the different groups and associations, whether they’re from the business sector or from other parts of civil society, or from sector-specific movements, etc, and trying to sit down and think about where your interests overlap and what you can do together to try and push for the type of reform that is of interest to these different parties is something that is quite interesting that we see happening, throughout most of the most of the cases.
Naomi: Yeah, and then in terms of capacity you do make it very clear in the book that it’s technical capacity, political capacity, communications capacity, and a really important capacity to learn and adapt, you need all of them.
Paolo de Renzio: Yeah, and this is something that I think is very specifically relevant in my view for donor agencies and, you know, other outside supporters who often tend to think that what you need is kind of technical capacity to engage in tax debates. And if you build the technical skills within civil society groups and other civic actors, then everything else will follow, almost, you know, naturally. And what we very clearly see from the case studies is that technical capacity is only one of many types of capacities that are needed for successful campaigns, and technical needs to go alongside the political, the political needs to go alongside the communication. So the crafting of the narratives, the capacity to sort of deploy effective messaging strategies and so on, all of these are needed. What is interesting to see is that not necessarily all of these need to exist within an individual organization that is spearheading a campaign. They can bring in others who have who can contribute some of the skills that they don’t have so that then, you know, the coalition becomes the repository of the needed capacities, rather than the individual organization.
And then the final point, which you mentioned, is that this needs to be seen in a dynamic, long term perspective, where basically that capacity to reflect on your own action, learn from it and see where you may have made some mistakes, correct course, or, you know, finding out which capacities are missing and therefore either developing them internally or bringing them in from the outside this is something that, again, that we see as very important and an important lessons for other organizations that want to follow these footsteps.
Naomi Fowler: My thanks to Paolo De Renzio and the International Budget Partnership. Their book, A Taxing Journey, How Civic Actors Influence Tax Policy, is available online to download for free. The link is in the show notes.
And finally, a quick tax justice news summary for you. After 10 years of campaigning, a huge anti money laundering breakthrough in the United States, beneficial ownership reporting has now begun under the Corporate Transparency Act. On the 1st of January 2024, the Treasury Department began accepting filings on the true beneficial owners of many, not all, U.S. companies. Newly formed entities must now file within 90 days of formation.
In Davos, Switzerland this month, as global business elites, government officials, and representatives of global financial institutions met for the World Economic Forum, 260 millionaires and billionaires from 17 countries signed an open letter asking governments to tax them more. They wouldn’t even notice the extra payments! You can read more about that campaign on www. proudtopaymore. org
The same month, Global South countries met in Uganda for the 19th Non Aligned Movement Summit. There they discussed South to South cooperation on combating illicit financial flows, reducing to the barest minimum the processes and costs of the recovery of assets, and debt and climate crisis challenges.
And, in the European Union: the European Parliament and the European Union’s 27 national governments have taken some steps forward to agree regulations to harmonize anti money laundering rules across the bloc. Cryptocurrency platforms will be subject to enhanced due diligence measures. That’s much needed. We need more though!
Not so good on beneficial ownership registers is that a proposal to lower the threshold where firms must identify the beneficial owners of legal entities from the current 25 percent stake to 15 percent didn’t make it because of opposition from EU member states. By the way, at the Tax Justice Network, we’d like to see a no-threshold approach following the examples of Argentina and Ecuador.
But, provision has been agreed now across the block for access to beneficial ownership registries for journalists, academics and other parties with a legitimate interest. The devil’s in the detail there, but it is an advance from the EU court ruling that took us backwards on transparency in 2022 when judges ruled as invalid the legal requirements on corporations, trusts and other legal entities to publicly disclose the identities of their beneficial owners.
Okay, that’s it for now. We’ll be back with you next month. Thanks for listening. Bye for now.
One of the first questions I was asked when I joined the Tax Justice Network was “how did a former schoolteacher come to be involved in the tax justice movement, and why?”
If you’re an educator reading this blog, there’s a decent chance you might be asking yourself “what even is tax justice?”
I was born and raised in Brazil. At the age of 18 I became a history teacher at a public school in the countryside, as part of an internship program my university had with the local schools. My first students were around fourteen or fifteen years old (not much younger than me). My plan had been to stay with the program for the four years it would take me to graduate, giving me enough experience to run my own classroom after graduation.
And it probably would have been the case, if it weren’t for the fact that this internship turned out to be a full-time job. The school (like many others in the district) did not have the funds to hire new staff and used interns as full-time employees. Back then, I had no teaching experience. Although I knew this was not what the program was supposed to be, I really needed the scholarship to stay in college.
I ended up teaching for about a year without a full-time salary, and with no rights as an employee. I finally moved to another school, where I at least had a teacher to guide me. Besides having unprepared and poorly paid interns as teachers, both schools faced many other issues – large numbers of students per classroom (mine had around 45), dilapidated buildings, lack of books and school supplies, lack of hygiene items, poor food quality and much more.
This experience sparked my curiosity to understand how schools get to this point, and what different aspects play a role in this – privatisation processes, unattractive career plans, corruption, etc. One thing was clear: all these issues were intrinsically connected to funding (or rather the lack of it).
When it comes to education funding in most Global South countries, there’s a lot in the media about external aid. Much is said about the massive loans made to governments by the World Bank and other international institutions, and how these can supposedly play a positive role in transforming education. But these only represent around 3 per cent of the funding allocated to public education worldwide, while the other 97 per cent comes from domestic sources. So, shouldn’t we be paying far more attention to the latter instead?
This has made it easy to explain why I ended up working with taxes: I joined the tax justice movement because tax abuse is costing us our right to education. Our right to free, public, quality education for all. When wealthy individuals and corporations don’t pay the fair share of tax they owe to society, we lose very necessary funds that could be allocated towards our students and schools – to be more exact, around 19 per cent of it in lower-income countries annually↪NOTETo calculate the percentage of public education spending lost, we compared education spending in each country (in terms of GDP ration and in US$, retrieved from the World Bank data) to the amount of money lost to tax abuse in each country (retrieved from the State of Tax Justice 2023 report).. As a result, almost 21 million children are denied a place in primary school every year – just because there isn’t enough money.
This World Education Day is a reminder of the vital importance of public education. When it is managed and delivered publicly, with adequate funding, and in the public interest, it is the most effective way to build just, inclusive, and sustainable societies. It is a powerful tool for diminishing inequalities, repairing colonial legacies, and meeting sustainable development goals and human rights commitments. The principles of tax justice can ensure that our governments have enough funding to guarantee the delivery of this right with ample funds and in a democratic manner by liberating this process from the constraints of aid and the private interests of donors.
Together with partners (such as the ActionAid, the Global Campaign for Education, the Global Initiative for Economic, Social and Cultural Rights, the Centre for Economic and Social Rights and regional partners), we will continue to advocate for just tax practices, and the right to free, quality education that flows from it.
Welcome to our Spanish language podcast and radio programme Justicia ImPositiva with Marcelo Justo and Marta Nuñez, free to download and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónico! Escuche por su app de podcast. (All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here.)
En este programa con Marcelo Justo y Marta Nuñez:
Las Naciones Unidas avanzan hacia un nuevo sistema impositivo mundial
El impacto de la victoria de Javier Milei en América Latina y el mundo.
We’re happy to announce the launch of the Tax Justice Network’s brand new weekly podcast The Corruption Diaries, available on most podcast apps. You can listen here to the trailer introducing the podcast, plus the first couple of episodes. Please share it far and wide! We’ll now begin releasing one episode a week, every Wednesday. Email me on naomi [at] taxjustice.net if you’d like me to send you a reminder as soon as we release each new episode.
In The Corruption Diaries 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, with stories and perspectives on reform you won’t hear anywhere else.
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. As he describes in the podcast, he was in a unique position to view and understand corruption:
It was like sitting in an easy chair looking down a manhole cover in an open sewer!”
As U.S. Senate staff attorney Jack Blum served many U.S. administrations as presidents rose and fell, and he’s advised governments on asset recovery, fighting corruption and transnational corporations. He travelled the world meeting and holding to account notorious drug and gun runners, key informants, intelligence agents, politicians, lawyers, accountants and heads of multinational corporations alike. And so as you’ll hear, he has a wealth of experience, fascinating stories and important insights to share from his long and accomplished career.
The Corruption Diaries (find it on your podcast app here) The Corruption Diaries is produced by Naomi Fowler and Jo Barratt. Interviews with Jack Blum were recorded over several days at Jack’s home in Maryland by journalist Zoe Sullivan. It's free to broadcast by any radio station.
Welcome to the 73rd edition of our Arabic podcast/radio show Taxes Simply الجباية ببساطةcontributing to tax justice public debate around the world. It’s produced and presented by Walid Ben Rhouma and is available on most podcast apps. Any radio station is welcome to broadcast it for free and websites are also welcome to share it. You can follow the programme on Facebook, on Twitter and on our website. All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here.
في العدد #73 من بودكاست الجباية ببساطة عدنا على أهم الأحداث الإقتصادية والإجتماعية في المنطقة العربية والعالم على إمتداد سنة 2023 زيادة على ملخص لأهم ما جاء في حلقاتنا للسنة ذاتها
In issue #73 of our Arabic podcast, we review the most important economic and social events in the Arab region and the world throughout 2023, plus a summary of the most important things from our episodes that year.
This year marked 20 years since the formal launch of the Tax Justice Network.
As part of our 20 year anniversary, we tasked On Think Tanks to conduct an evaluation of the impact we have had, the difference our research and activism have made, the policy changes we contributed to, and the broader benefit from our wins (and failures!) over the past 2 decades. The study by OTT presented an assessment of the Tax Justice Network’s 20-year history that highlighted our significant impacts in the tax justice space. The assessment highlighted how:
The Tax Justice Network places a strong emphasis on evidence-based outputs and advocacy, which are fundamental pathways towards sustainability, professionalism, and impact.
The Tax Justice Network has emerged as an accessible resource for media outlets, development organisations, government institutions, and grassroots movements seeking to interpret, substantiate, and assess arguments in the realm of tax justice, with the scope and reach of our media coverage having increased over the years.
The journey towards a UN tax convention has been significantly underpinned by arguments and evidence put forth by the Tax Justice Network, providing an important part of the empirical basis to substantiate the arguments for a revolutionary governance shift.
The Tax Justice Network has catalysed the movement through two primary channels. One avenue is diffusion, where staff or associates draw inspiration from the Tax Justice Network and establish their own tax justice initiatives or research agenda. The other involves providing support and convening global meetings primarily led by leaders from the global south and shaped by their agenda.
As in the two decades before, this work continued throughout 2023: deepening and expanding our research, analysis and advocacy, to secure narrative shifts, and bring about systemic change to challenge tax injustice.
Flagship publications and tools
Our work again reflected the impact that weak global tax policies are having, with countries being on course to lose US$4.8 trillion in tax to tax havens over the next 10 years. $311 billion of tax lost annually is lost to cross-border corporate tax abuse by multinational corporations and $169 billion is lost to offshore tax abuse by wealthy individuals. Lower income countries, which have historically had little to no say on global tax rules, continue to be hit harder by global tax abuse, with their tax losses of $47 billion being equivalent to half of their public health budgets.
Alongside work on our State of Tax Justice report, we also announced changes we’re working on in respect to the way we publish our Financial Secrecy Index and Corporate Tax Haven Index. The changes involve switching to sequential, rolling updates of partial sets of indicators, instead of large-scale updates of each of the indexes as a whole. This is intended to make the indexes more robust and impactful (while at the same time allowing for a more balanced spread of our workload.)
Importantly, 2023 also saw the launching of two new tools: our Data Portal, and the Tax Justice Policy Tracker.
Our Data Portal provides a convenient way for researchers, journalists, activists and the wider public to explore, download and use data produced by the Tax Justice Network and selected data from other sources. With the data portal, we aim to provide a one-stop-shop for anyone interested in working with indicators of tax havens and financial secrecy.
The second new tool we launched in 2023 is the Tax Justice Policy Tracker, which monitors and promotes progress on nine key policies that are important for reprogramming our tax systems for the better. The tracker grades each country’s laws on how well the country is implementing each of the nine policies, helping governments spot where they can improve. The tracker also reports each country’s public position on each of the policies. We kicked off the beta version of the tracker with one live-tracked policy, the UN tax convention, because this is the most critical question facing policymakers internationally today. The next policies will be incorporated gradually in the coming years.
Research
Over the course of 2023 we finalised a study that estimated the potential impact of a wealth tax in EU countries; closely followed and analysed the EU’s BEFIT proposal for corporate tax reform; assessed the impact of offshore leaks on bank deposits in tax havens; analysed country by country reporting data on profit shifting in Slovakia; worked on developing a conceptual framework for indicators of tax havens and secrecy jurisdictions and quantifying corporate profit misalignment at the company level; finalised a study on VAT fraud in collaboration with ECORYS; and worked on a research paper that develops a methodology to illicit financial flows using a bilateral gravity model. We also collaborated with government authorities around the world (eg Uganda, Nigeria, Slovakia, Ghana, and others) to analyse detailed administrative data and to provide granular policy recommendations for mitigating illicit financial flows.
Beneficial ownership
We have long advocated for the transparency of beneficial ownership information. Over the course of 2023 we conducted a review of the state of play of beneficial ownership in Latin America and Africa. We also provided extensive input into the Financial Action Task Force’s Recommendation 25 on beneficial ownership transparency for legal arrangements; looked at 30 uses for beneficial ownership beyond money laundering; and discussed the 10 targets every country’s beneficial ownership strategy should meet. Not surprisingly, our analysis also showed how the split among EU countries in respect of beneficial ownership mirrored their rankings on the Financial Secrecy Index. Our advocacy efforts were wrapped up with various workshops, training sessions and webinars on beneficial ownership.
Importantly, 2023 also saw the launching of our roadmap to beneficial ownership transparency (REBOT), offering a graduated framework with a series of steps governments can take on the road to achieving transparency.
We have also been actively participating in various fora around the world, from the IMF and World Bank spring meetings; testifying at parliamentary subcommittees; and moderating panels at conferences – all around securing greater transparency in global financial systems.
Country by country reporting
This year saw our first country by country reporting webinar, focusing on the legislative process to explain the nature and politics of public country by country reporting by multinational companies in Europe, the United States, the United Kingdom and Australia. Policy changes secured by partners active in each location will begin to yield fruit in new public reporting requirements that kick in during 2024, as the shift to full transparency appears increasingly inevitable – while remaining a major struggle against the defenders of tax opacity.
Tying climate justice to our advocacy work on beneficial ownership, we also explored the link between beneficial ownership and climate crimes in the fishing industry in particular; and lifted the lid on who benefits from opacity in beneficial ownership in the fossil fuel industry.
This work on climate justice is rolling over into 2024, with our March 2024 Paris conference that will be focusing on historic global emissions and centile-level climate reparations.
Enforcement by well-resourced and independent tax authorities
Our illicit financial flows analysis has been finding application on a practical level with work being done to help various government authorities to analyse microeconomic data (at the entity- or transaction-level) to identify illicit financial flows and to effectively design mitigatory policies. In 2023 this included identifying illicit financial flows using customs data; and analysing micro-level data on intra-group transactions of multinationals to identify companies to audit and to estimate the scale of profit shifting.
Human rights
One of our primary objectives has been in articulating the impact that tax injustice has on the ability to secure and fund fundamental human rights. We continued to work on research collaborations with the Government Revenue and Development Estimation tool (GRADE) at St. Andrews University, exploring and illustrating the pervasive impact of tax abuse on rights to health, education and on climate justice.
Over the course of the year our human rights advocacy work also included making a number of submissions to UN special rapporteurs: on the importance of freedom of expression in sustainable development; the effects of foreign debt and human rights in Liechtenstein and the Bahamas; and fiscal legitimacy through human rights. As part of the Tax Ed Alliance – a network of global organisations advocating for transforming financing of public education – we are contributing to the development of a taskforce on tax justice and the right to education; and have been working on capacity building with the Global Campaign for Education on the UN Tax Convention and the effects on education financing.
Aside from this deeper focus on education, we have also expanded our work into exposing the effects of racism in tax systems and human rights; worked on a short documentary video and brief for the Demotrans EU consortium project on Ireland and Kenya’s lack of incorporation of taxation into their Business and Human Rights Action Plans; presented a webinar with more than 20 grassroots women’s organisations in Brazil; and provided expertise in support of the Global Alliance for Tax Justice Tax & Gender Working Group’s strategy and theory of change for a ‘feminist global, regional and national tax system that resources the full realisation of women’s human rights’.
We also worked with a range of human rights and economic justice partners to deepen analysis of the colonial nature of OECD dominance over international tax rule-setting; and participated in an Expert Group Meeting on the Accountability of Powerful Private Actors in Global Health convened by the UNU-IIGH. The inaugural meeting invited academics working on global public health and a small number of civil society organisations to consider collaborative responses to the threat posed by unaccountable actors in the sphere, including through unchallenged tax abuse.
Reaching people
Our monthly Tax Justice Network podcastscontinue to go from strength to strength. Completely separate productions in English, Spanish, Arabic, French and Portuguese, they are available on the dedicated thetaxcast.com website and on most podcast apps. In 2024 we will be rebranding all our podcasts, and are also planning a new India/Pakistan podcast and hope to launch a Small Island Nation podcast.
We are launching a new weekly Tax Justice Network podcast series starting in January 2024, called The Corruption Diaries. It’ll take listeners on a journey through the eyes of anti-corruption veterans, with perspectives on reform and key historical events you won’t hear anywhere else! In the first series we sit down with one of the heroes of tax justice over decades, leading white collar crime lawyer Jack Blum who tells us about his life’s work. You can search on your favourite podcast app for The Corruption Diaries and subscribe there, or find it here.
In addition to ongoing coverage of our flagship materials like the indices and our State of Tax Justice report, our letter to King Charles III prior to his coronation drew media attention to the role of the UK and its network in global tax abuse, as well as linking to the historic injustices behind the UK’s wealth. This builds on our continuing work to highlight the role of tax as a tool of colonial extraction, and also the scope for tax to play a significant role in necessary reparations and ongoing redistribution.
Over the course of 2023, we published 119 blogs (and still counting!). Alongside this, our work featured in more than 314 broadcasts, 2,745 online media mentions, and 246 print pieces in over 140 countries. In July alone, when we published the State of Tax Justice report, our research was covered in 602 articles with a reach of over 5 billion. Over 300,400 sessions occurred on the Tax Justice Network website and our social media posts on Twitter, Facebook and LinkedIn had a combined reach of over 1,545,958.
A changing landscape more than 2 decades in the making
No roundup would be complete without mentioning the significant shift in global tax policy development that 2023 brought with it.
We have long advocated for a more representative, more transparent, and more responsive platform for the development of global tax policy. In November 2023, an overwhelming majority of countries took historic action towards making this a reality. Countries at the UN adopted by a landslide majority a resolution to begin the process of establishing a framework convention on tax, to completely change how global tax rules are decided. The success of the resolution despite the resistance from the world’s strongest economies is a rare feat, and demonstrates the overwhelming demand from countries outside the OECD for the meaningful voice on global tax rules which they have historically been denied.
While this vote was the focus of collective advocacy, important groundwork was also happening elsewhere. Our team members were heavily engaged in the Latin America Summit in Cartagena (working closely both with Ministerial officials in the region, civil society, and UN human rights officials) using Tax Justice Network tools and data to press home the importance of the shift of tax governance to the United Nations. A specific outcome of the Cartagena Summit was the establishment of a Platform on Tax which is chaired by the Colombian Government; and an invitation to join a dialogue with the Chilean Minister of Foreign Affairs, the UN High Commissioner on Human Rights, the UN office coordinator in Chile and the new member of the Committee on Economic, Social and Cultural Rights with a view to keeping the momentum going on truly securing global tax policy development.
The vote marked a turning point, and sets us on an exciting new course in 2024 and beyond, in pursuit of tax justice!
Looking ahead to the next 20 years, we also published our new strategic framework – beyond20. This was important, because – while the last two decades have seen some transformative steps forward – the world remains characterised by pervasive tax injustice. Our policy platform to curb this is summarised as the ABC DEFG₃ of tax justice:
The DE of domestic measures to ensure transparency results in effective accountability (Disclosure of sufficient public data, and Enforcement by well-resourced and operationally independent tax authorities);
The FG₂ of international elements (Formulary apportionment with unitary taxation, to end corporate tax abuse by ensuring that profits are taxed in the location of the real, underlying economic activity; Governance reform, centred on the establishment of a genuinely, globally inclusive process for the setting of tax rules and standards, under UN auspices; and a Global asset register (GAR), to connect and broaden the range of beneficial ownership registers across all legal vehicles and high-value assets, across jurisdictions, to provide a critical tool against abuse of tax, regulations and sanctions); and
G₃, Good taxes – a catch-all covering a progressive and effective overall tax system, and significant individual components of the tax justice agenda including wealth taxes, climate-related tax measures, excess profits taxes and minimum effective tax rates.
Global governance changes are crucial to the prospects of delivering policy changes in each area that can finally curb the scale of tax abuse, and address the global inequalities in taxing rights. Our 20th anniversary year was a good one, that has laid the groundwork for even more ground-breaking, paradigm-shifting work in 2024. We’ll see you there!
The holiday season is upon us, which for the millions of dust-covered board games that have spent the year hibernating in cupboards and cabinets means making the annual pilgrimage to the family dinner table to collect the biscuit crumbs and greasy finger stains they need to sustain themselves for another a year.
In honour of the annual cardboard migration, we’ve created the ‘Tax Dodgers Rules’ that you can play with using your own copy of a monopoly game. Cheat your way to extreme wealth and (hopefully) learn about how the rich and powerful abuse tax and hide their wealth from the rule of law. You can buy secrecy layers to hide your money from the players you owe money to and avoid paying tax. And you can establish beneficial ownership registers to expose your opponents’ secrecy layers. But be careful, there’s only so much wealth you can hoard for yourself before society collapses – and all players lose.
Of course, our suggestion is just to have some fun, and is nothing to do with the game Monopoly itself. The publishers of Monopoly have in no way endorsed this. Mind you, we’d like to think that Lizzie Magie – the original game designer, when it was first called The Landlord’s Game – might well have appreciated what we’re doing here. Magie was a feminist and a Georgist (a follower of Henry George, who had some interesting ideas about tax), and the point of the game was to make the case for land value taxes.
Here are the rules below (you can download these as a PDF – or as a word doc with working links). You can also download the printable ‘Tax cards’here, which you’ll need for the game. Have fun!
Download the rules as a PDF. Download the printable ‘Tax cards’.
A falta de transparência, a falta de abertura para participação social, as tentativas de suborno e corrupção, as brechas na legislação, além de algumas dificuldades bem visíveis, como a falta de equipamentos ou pessoal suficiente….
Como nossos heróis e heroínas invisíveis se preparam para enfrentar os desafios da administração tributária?
Esse é o tema do episódio #56 do É da Sua Conta, especial de fim de ano e em homenagem a auditores e auditoras fiscais das administrações tributárias do Brasil e dos países africanos lusófonos.
Qual o perfil ideal para trabalhar na administração tributária? Seleção, formação inicial e capacitação durante a carreira de auditoras e auditores com Márcio Verdi (CIAT).
Cabo Verde, Angola, Guiné Bissau e São Tomé e Princípe: os desafios dos profissionais da tributação nos países lusoafricanos, com Clair Hickman.
Fim da Escola Nacional de Administração Fazendária (ESAF), greve e falta de condições de trabalho: o que ocorre na Receita Federal? O Isac Falcão (Sindifisco Nacional) responde.
Justiça fiscal como princípio norteador da formação de nossos heróis e heroínas, com Florencia Lorenzo (Tax Justice Network).
“Defendo que deve sempre haver uma formação inicial. Por melhor formada que a pessoa venha, ela precisa ainda entender, por exemplo, dos aspectos éticos, morais e código de conduta.” ~ Márcio Verdi, secretário executivo do CIAT
“Quando o servidor da administração tributária ingressa através de um processo seletivo transparente, com provas e título, faz uma melhora sensível no corpo funcional, e depois, inclusive, no oferecimento do serviço público daquela instituição para a sociedade.” ~ Clair Hickman, consultora para administrações tributárias em países lusoafricanos
“Quando o presidente (Lula) falou que é preciso colocar o rico no Imposto de Renda, não é que o rico ia pular pra dentro do Imposto de Renda, precisa de uma administração tributária pra fazer isso.” ~ Isac Falcão, presidente do Sindifisco Nacional
“Um sistema tributário que foca naqueles que têm maior capacidade contributiva, é também um sistema mais eficaz.” ~ Florencia Lorenzo, Tax Justice Network
Participantes:
Beandrea Montoro, auditora fiscal em Guiné Bissau
Clair Hickman, auditora fiscal aposentada e facilitadora de treinamentos e consultoria fiscal em países lusoafricanos
Postos de fiscalização fechados à noite por falta de iluminação nos pátios, auditoras e auditores da Receita Federal em greve por mais de um mês em 2023, proposta do governo negada pela categoria. O que está acontecendo com a Receita Federal?
Neste episódio bônus, entrevista exclusiva com Isac Falcão, auditor da Receita Federal e presidente do Sindicato Nacional dos Auditores Fiscais da Receita Federal no Brasil, o Sindifisco.
After attending the United Nations Tax Committee meeting in October and participating in its deliberations, Professor Sol Picciotto reflects in his latest blog contribution on the history of the Committee and its role in international tax. (Shared with permission)
The meeting of the UN Committee of Experts in International Tax held in Geneva from 17 till 20 October 2023, took place at a time of historic developments in the international tax world. The previous week had seen the tabling at the UN, by Nigeria on behalf of the African group, of a resolution calling for the negotiation of a UN convention on international tax cooperation. This was subsequently approved by the General Assembly’s Second Committee, opening up new possibilities for international tax governance.
The same day was also marked by the publication, by the Organisation for Economic Cooperation and Development (OECD), of the full text of the multilateral convention (MLC) to address the tax challenges of globalisation and digitalisation, a key part of the two-pillar package negotiated through the OECD/G20 Inclusive Framework on BEPS (base erosion and profit shifting). However, the MLC remains stalled, and reports indicate continuing disagreements and political reservations, and above all serious doubts over the likelihood of US ratification, which is essential for the convention’s adoption.
The transition to a possible new global framework through the UN will take some time, but in the meantime the UN Committee has become increasingly active.
New Energy in the UN Committee
The October sessions of the UN Committee were crammed with discussions of detailed technical tax matters. There was little mention of the wider global developments, yet the meeting provided a fascinating counterpoint to them, particularly for those of us who have long supported and followed the Committee’s work. The current Committee is tackling an ambitious agenda with energy, efficiency, and determination, particularly among its members from low- and middle-income countries. This is in sharp contrast to its previous history, when it was almost entirely concerned with tax treaty issues and beset by continuing conflict about whether, and how far, the UN model should align with that of the OECD.
Now, halfway through the 4-year term of the current membership which runs to 2025, the Committee is well on the way to delivering reports covering a wide range of issues, including wealth and solidarity taxes, environmental taxation, indirect taxes, health taxes, and improvement of tax administration (including through digitalisation). This list adds to other important issues which fall within the Committee’s more accustomed areas of international tax, such as further refinement of transfer pricing guidance and updates to the UN model convention.
The Committee’s work in this more traditional area has also become bolder, with certain far-reaching proposals. Two can be singled out in particular:
1) Fast-Track Instrument
One is a proposed ‘Fast-Track Instrument’ (FTI) – a multilateral tax treaty aiming to streamline the adoption of selected key provisions of the UN model into existing tax treaties. These would strengthen the protection of the right to tax at source profits derived from activities in the country where they are performed.
The proposed FTI (Annex B, here) has the potential to transform key provisions of the UN model into a de facto global standard. These would mainly be provisions protecting source taxation, especially those adopted in the recent years by the Committee, namely:
taxation of capital gains relating to natural resources and offshore indirect transfers,
fees for technical services,
income from automated digital services,
the Subject to Tax Rule (a broader alternative to the one in Pillar Two),
capital gains from immoveable property.
It also proposes to include the UN model’s articles on Pension Funds and Arbitration.
Like the OECD’s Multilateral Instrument to implement tax-treaty related measures to prevent BEPS (the MLI), the FTI would operate flexibly with an opt-in approach and a matching mechanism, allowing states to decide mutually which treaties would be covered. Nevertheless, it would establish a gold standard, and could speed up the adoption of these key provisions.
A Shift in the Allocation of Taxing Rights
The FTI could therefore greatly facilitate a much-needed reversal of perspective on the tax treaties’ allocation between states of rights to tax. Tax treaties essentially operate to restrict the intrinsic rights of states to tax income at source, where the profit-generating activities take place, based on the view that countries should encourage foreign investment, particularly by multinational enterprises (MNEs). This was acceptable among OECD countries, which are generally both home and host countries for MNEs, but unfairly reduces the taxing rights of low- and middle-income countries, which are generally only hosts for foreign MNEs.
Despite the rhetoric about tax treaties encouraging investment, in reality, allowing non-residents to escape tax on profits from business in the country damages both tax revenues and the economy, by discouraging foreign firms from creating local jobs, and offering them tax advantages over local competitors. Moreover, residence-based taxation has propelled tax avoidance, especially since the 1990s, by incentivising MNEs to locate intermediary entities, especially those supplying services or licensing intangibles, in low- or no-tax jurisdictions. OECD countries finally decided to address proliferating tax avoidance in the BEPS project in 2012. However, that project was explicitly designed not to change the existing allocation of taxing rights.
Low- and middle-income countries have since the beginnings of international tax, sought to protect source taxation rights. However, the design of tax treaties, which form the skeleton of the international tax system, became dominated by experts from capital-exporting countries, particularly the US, known as the main home country of MNEs for most of the last century.
A key part in this history was played by Mitchell B. Carroll, who acted as a consultant for the US government, as well as a private practitioner and adviser to US industry groups such as the National Foreign Trade Council. He played a dominant role in the League of Nations Fiscal Committee (although the US did not join the League), as the US representative and then its secretary. He also helped found, and then became the first President of, the International Fiscal Association. A recently published history by Nikki Teo has helped document the key period witnessing the formulation of the ‘Mexico’ and ‘London’ versions of the tax treaty model, and the failed attempt in 1945-54 to establish a Fiscal Commission at the UN. Many followed in Carroll’s footsteps, so that the moulding of international tax rules became dominated by the perspective of tax advisers for MNEs and of capital-exporting country governments, institutionalised at the OECD.
It was not until 1967 that the UN came back into international tax, but only with an ‘Ad Hoc Group of Experts’, which was slightly upgraded in 2005 to a Committee of Experts. Its work remained narrowly focused on discussion of modifications to the OECD model convention to generate a UN version more acceptable for capital-importing countries. The Committee has also been greatly hampered by minimal resources, despite a boost in 2015 that enabled it to meet twice a year. This, combined with the growing frustration among middle- and low-income countries at the marginalisation of their perspectives during the OECD-led BEPS project, has led to the greater activism of the UN Committee.
2) Services Taxation Regardless of Physical Presence
The second bold proposal in the recent meeting resulted from these long-standing concerns about the restrictions on source taxation, accentuated by the emergence of e-commerce twenty years ago. This shift to a digitalised economy sparked discussions in the Committee back in 2004 that were initially radical, including talk of the possibility of defining a taxable presence test based on a threshold of sales revenue, and attribution of net profit to a non-resident using formulary apportionment. In fact, this approach has a long history, going back to the origins of the tax treaty system, and elements of it were included in the Mexico model and are still retained in the UN model.
The Committee was not ready to tackle such a comprehensive approach at that time, and in 2011 decided to focus on taxation of fees for services. Even so, it took another five years to agree on a new provision to be included inclusion in the model treaty (article 12A) for a withholding tax, and it covered only fees for technical services. Since these were defined to require human intervention, the measure did not extend to the digitalised delivery of services, although a broader provision was included as an option in the Commentary.
By this time, the BEPS project had completed its first phase, although work was still continuing on the main issue, namely addressing the tax challenges of the digitalisation of the economy. At this stage the UN Committee limited its role to following up on the outcomes of the BEPS project, while the non-OECD members of the Inclusive Framework had begun to act more cohesively in the BEPS project negotiations.
This was seen particularly when the G-24 group of developing countries put forward a radical proposal for taxing multinationals based on a new significant economic presence test, with an allocation of their consolidated global profits among countries where they have sales, using fractional apportionment. A consultation draft published by the OECD in October 2019, adopted the principles of this approach, but the proposals were complex and with a limited scope. This issue was highlighted in a paper submitted to the UN Committee by the Indian expert member, who proposed that the Committee should develop a simpler alternative. He therefore proposed a right to tax net income from ‘automated digital services’, even without a physical presence, through fractional apportionment, by applying the MNE’s global profit rate to local sales and attributing an appropriate share to the market jurisdiction.
Further work quickly produced a new article: 12B. This article took the more familiar form of a withholding tax on the gross payment amount, at a rate to be agreed between treaty partners. However, it included a provision (article 12B.3) for the recipient of the income to opt for taxation of the net income (at the country’s normal domestic rate) based on fractional apportionment, allocating 30% to the market jurisdiction. This proposal was then approved for inclusion in the UN model in 2021.
The Proposed New Provision for Taxing Cross-Border Services
The new model treaty article now proposed would combine and also extend the main articles in the UN model dealing with the taxation of cross-border services. It would integrate into a single provision articles 12A, 5.3.b (the famous ‘Services PE’ provision) and 14 (for independent professional services). This would ensure that a provider of services from outside the country could be taxed on payments received from residents in the country for any services, regardless of the nature of the service and without any need for physical presence, although perhaps subject to a revenue threshold. However, at present the proposal would not cover automated digital services, which would be dealt with separately by article 12B.
This new article, which the Committee at this recent meeting agreed to conclude, would provide helpful simplification of the right to tax at source payments for services, regardless of whether they may be classified as technical or professional, or delivered by an independent person or an enterprise. The application of a withholding tax on payments for services is justified because such payments are generally made by businesses, and deductible from their income, hence they directly erode the source country’s tax base. For this reason, the tax could apply regardless of whether the service is performed in the country. This type of tax is also relatively easy to administer.
Nevertheless, this is a blunt instrument, because this type of withholding tax applies to the gross amount of the payment. Although it is regarded as a tax on income, and so within the scope of the treaty, and hence eligible for a credit against any tax liability in the treaty partner, it is not calculated on the net income or profit, and the rate takes no account of the profitability of the transaction or of the MNE concerned. Although this is short of a satisfactory and comprehensive solution to the problem of a fair allocation of taxing rights over MNEs’ global profits, it is a practical immediate solution that can protect the tax base of middle- and low-income countries that are hosts to MNEs.
What Next?
It has become increasingly clear that effective and fair taxation of MNEs should be based on treating them in accordance with the economic reality that they operate as unitary entities, and that the rights to tax their global profits should be allocated by factors that reflect their real economic activities in each country. This approach was explored by an ICTD-supported research on unitary taxation of MNEs. Strangely, the BEPS project has now resulted in the acceptance of this approach in principle, as well as an agreement on the detailed technical standards needed for its implementation. However, the current proposals for implementation are inadequate and unfair, and the MLC is very unlikely to be implemented.
The time now seems right for a new initiative, which should be led by the middle- and low-income capital-importing countries. Such a proposal has now been outlined in a briefing by a group of authors, including two prominent members of the UN Committee.
The Shift to a Global Tax Framework
The new dynamic of the UN Committee has emerged in parallel with, and largely independent of, the political pressure for the UN to take on a much wider role through a multilateral convention which could create a new global institutional framework for tax. Yet the two processes are linked, due to their common underlying cause. The UN Committee’s long-standing preference for taxation at source, where activities take place, has been vindicated. Only a truly global tax body could finally achieve the radical reform needed to achieve a comprehensive, fair, and effective rebalancing of taxing rights over the global income of MNEs.
In the words of a foremost international tax specialist, who has frequently provided technical input and support to the UN Committee: “[i]n recent years, it has become increasingly apparent that the OECD – with or without the Inclusive Framework – is not an appropriate body to lead on international taxation”. As Philip Baker concludes, what is now needed is a “well-conceived and ordered transition of resources, functions, personnel and leadership to the UN.”
Hopefully, the negotiations over the proposals at the UN may lead to a new institutional framework, that can subsume the arrangements already achieved for international tax cooperation, for example through the Global Forum on Transparency and Exchange of Information for Tax Purposes, while creating a more conducive basis to take forward the substantive work on international corporate taxation. It is now time for government negotiators to lay aside considerations of narrow national self-interest and work together to create a truly global framework for tax systems that can help achieve sustainable development.
Further Reading
P. Baker (2023), ‘United Nations General Assembly resolution on the “promotion of inclusive and effective international tax cooperation at the United Nations”’. British Tax Review (1): 20-23, p.23.
Sol Picciotto (2013), ‘Is the International Tax System Fit for Purpose, Especially for Developing Countries?’ ICTD Working Paper 13.
Sol Picciotto (2021), ‘The Contested Shaping of International Tax Rules: The Growth of Services and the Revival of Fractional Apportionment’, ICTD Working Paper 124.
[Image credit: “UN Secretariat Headquarters, New York” by UN Photo/Manuel Elias is licensed under CC BY-NC 2.0]
Close to 100 countries have approved beneficial ownership registration frameworks. Many of these countries will likely have to upgrade them after the recent reforms of the Financial Action Task Force recommendations 24 and 25 on beneficial ownership transparency for legal persons and trusts. And if not based on the reforms, then based on the pretty bad ratings given them by the Global Forum 2023 Annual Report:
We agree with secrecy supporters that beneficial ownership registries haven’t solved the issue of illicit financial flows. Tax evasion, money laundering and corruption keep flourishing unabated. However, this is not a reason to throw loophole-ridden beneficial ownership registries out with the proverbial bathwater. On the contrary, it just adds more urgency to get them right.
There are many things to fix. Applying verification and expanding access to all stakeholders (ie public access) so that beneficial ownership can serve multiple uses are obvious first steps. But our latest report deals more with the fundamentals: getting the law right to begin with. In this regard, complying with the weak standards of the Financial Action Task Force or the Global Forum won’t solve things either. As we’ve long warned, these standards have advised governments to build houses on sandy soil – it’s shouldn’t come as surprise then when walls begin to crumble.
Beneficial ownership vs legal ownership
Most companies have very simple structures where the legal owner (ie shareholder) directly owns and controls the company. In this scenario the shareholder is also be the beneficial owner. This information is publicly available in most commercial registries. That’s all good. The problem starts with complex ownership structures – ie where a company or legal entity is owned by many layers of entities spread across tax havens. These structures have been used by oligarchs, criminals and tax abusers to circumvent the rule of law. When it come to these structures, relying on just commercial registries is usually not enough to solve the problem.
Consider the following complex structure, where each colour represents a different country of incorporation and where the real beneficial owners are Mary, John, the settlor and the beneficiary of the trust sitting at the top of the structure:
Relying on only legal ownership information held in commercial registries wouldn’t be enough to identify all these beneficial owners, even if (and this is a very big “if”) information on all the real owners was available in all relevant commercial registries.
The commercial register of country red would reveal that Company 2 is the legal owner of Company 1 (Mary wouldn’t appear in the commercial register). The next commercial register (country blue) would identify Company 3 and John as owners. The commercial register of country green would identify the trustee as shareholder (there might be no indication that the trustee is acting as a trustee on behalf of the trust, and could give the impression that she is the real beneficial owner). Even if the trustee declared the name of the trust to the commercial register of country green (which is unlikely), it would be even more unlikely that country orange has a trust register in which to find information on the settlor and the beneficiary. After a very time-consuming search, an investigating authority will at most identify just John and the trustee.
Current beneficial ownership registries aren’t that much better. Many of them include basic legal ownership information (eg Company 2) but not the full ownership chain (Company 3 and the trust) needed to confirm the declared beneficial owner on top. As for the beneficial owner information they hold, they would likely require the registering of the trustee, and in the best case scenario the settlor and beneficiary as well. But, Mary, who merely has influence (which may be hard to detect without advanced verification mechanisms) would likely avoid registration requirements, as would John. Only a truly effective beneficial ownership register would be capable of providing an overview of the whole ownership chain as shown in the figure.
Why beneficial ownership frameworks are flawed (even if in compliance with international standards) and how to fix them
As the brief describes, following the Financial Action Task Force’s recommendations, most countries identify as beneficial owners only those individuals who hold more than 25 per cent of the capital in a legal entity, and where no one is identified, those with “control via other means”.
Based on the goal of saving costs for companies and for firms, financial institutions and other obliged entities that must undertake customer due diligence, countries take a “small” data approach (rather than the “right-data” approach), asking for as little information as possible and hoping that this makes it easy and cheap to collect and verify information. There’s perhaps also a naive hope here that that the catch-all phrase “control via other means” will capture all relevant individuals while asking for little. This supposedly cost-saving choice is a false economy and comes at a great cost: authorities are unable to obtain all the information they need, instead needing to spend considerable time to identify the real beneficial owners.
Instead, the brief explains that a no-threshold approach (ie requiring the identification of any beneficial owner with at least one share or vote), coupled with more extensive details to be collected (eg information on those with a power of attorney or with exposure to a company’s economic performance) is the only way to ensure that authorities will have all the beneficial ownership information they need when the need arises. This way, authorities can readily analyse the information they hold to reveal undisclosed relationships, properly conduct investigations into crimes, and detect crimes that might otherwise go unnoticed.
Importantly, as this brief will show, implementing a no-threshold approach does not add costs: even a framework with a 25 per cent threshold presupposes that anyone holding directly or indirectly at least one share has been identified. This is the only way to aggregate all holdings and determine which of those passed the threshold. Switching to a no-threshold approach would require no additional work in identifying direct or indirect shareholders.
Busting the claims against a no-threshold approach
The sandy soil governments were advised to build their beneficial ownership frameworks on is the “25 per cent or more” threshold. The single most effective action governments can take to strengthen their beneficial ownership frameworks is switch to a no-threshold approach, following the examples of Argentina or Ecuador. This would identify as a beneficial owner any individual who has at least one share or vote in a legal entity – and eliminate the transparency escape hatch that is making beneficial ownership registers ineffective today.
Opponents to the no-threshold approach have made some arguments pushing back against the approach. The brief and the table below responds in detail to these.
Proportionality
Claim: Requiring “all” individuals to be registered (because no thresholds are applied) is by definition disproportionate.
Our response: There are plenty of cases where regulations apply to “all”: all legal owners must be identified with the commercial registry, all parties to a trust must be identified as beneficial owners. In many countries, all individuals must obtain a national ID, all taxpayers must file tax returns, all individuals wanting to drive must obtain a driving license, etc.
A measure should not be automatically considered “disproportionate” just because it applies to “all” people or companies rather than to specific ones. Collecting information about all individuals with a link to an entity (rather than only of those with more than 25 per cent of the shares) is not necessarily disproportionate.
The goal of beneficial ownership frameworks is to tackle illicit financial flows such as corruption, money laundering, the financing of terrorism, tax evasion, sanctions evasion, etc. Collecting beneficial ownership information for all owners regardless of the value of their shares does not impose a burden on an individual that is excessive in relation to the objective sought to be achieved. In fact, a no-threshold approach already applies in the case of legal owners of companies (all persons must disclose their direct shareholdings to a commercial register) and to beneficial owners of trusts (all parties to the trust must be identified as beneficial owners regardless of their interest or rights to the trust assets and income). In fact, for most companies with simple structures where the beneficial owner directly holds the shares, beneficial owners are already identified with a no threshold approach – eg in the UK more than 80 per cent of companies have simple structures.
The only ones who would be affected by a no-threshold approach are those who intentionally create complex offshore structures to remain below thresholds, as a way of avoiding transparency of their financial affairs.
In addition, most administrative processes involve an “all” approach. In many countries, all individuals must obtain a national ID, which may include providing their date of birth, address, signature and fingerprints. This does not mean that all individuals are regarded as potential criminals. This is simply information that the state needs to fulfil its obligations, including the prevention of crime, ensuring economic fairness, planning and budgeting for social services, identifying missing persons, etc.
In many jurisdictions, all taxpayers must file tax returns, not because they are all considered tax evaders, but because it is how tax authorities ensure and verify compliance. In addition, having information on all taxpayers, both honest and not, allows authorities to compare them, to find patterns or red flags to ensure a level playing field where everyone pays their fair share. All customers must provide a financial institution with information for the know-your-customer due diligence procedures, not because they are would-be money launderers but in order to apply proper checks.
A risk-based approach allows for additional measures to be taken, but for it to be effective in detecting anomalies and outliers it does require obtaining a minimum amount of information from all.
Claim: A definition without thresholds does not pass the necessity test because an individual with 1 per cent or less of the shares would not be in control of the company and would thus not be responsible for any crimes.
Our response: Thresholds are deliberately exploited by criminals and those who want to remain hidden from authorities, undermining the whole purpose of beneficial ownership transparency. A person with even a 0.01 percent interest in a listed company (eg Apple) would have no control whatsoever over the entity, but that that tiny percentage could be worth millions of dollars. Identifying this person could be relevant to money laundering, corruption, tax evasion, etc.
Criminals exploit loopholes, especially thresholds, to remain hidden from authorities.
Beneficial ownership transparency is about identifying the real owners and controllers of legal vehicles to prevent them from engaging in illicit financial flows such as corruption, money laundering, tax evasion, etc. Thresholds are deliberately exploited by criminals and those who want to remain hidden from authorities, undermining the whole purpose of beneficial ownership transparency. Thresholds allow individuals to remain hidden, either by distributing their interests so they are slightly below the threshold, or directly by not having any ownership interest but rather holding control through a power of attorney, financial instruments, etc. As visually illustrated in a publication on beneficial ownership and investment funds , a 0.01 per cent interest in Apple would give no control whatsoever over the design of the iPhone. However, that tiny percentage would be worth more than US$200 million. Identifying the beneficial owner of that 0.01 per cent would be relevant to determine whether taxes have been paid and how the beneficial owner afforded that interest to begin with, to dispose of cases of corruption or money laundering.
A no-threshold approach is the only way to ensure all relevant individuals are covered, no matter their circumvention attempts.
Claim: Preventive collection of data and pattern-finding violate criminal law principles. Looking for patterns to investigate specific individuals before suspicions exist violate the principle that “the suspicion leads to the investigation” rather than the other way around.
Our response: Crime prevention is just as important as its prosecution. There is no need to wait until a criminal act or wrongdoing happens in order to act. Crime prevention does not affect the presumption of innocence. Most legal frameworks put a lot of emphasis on prevention, not because they consider all individuals as future criminals or victimisers but to prevent them from becoming such.
All drivers need to obtain a licence to prove they know how to drive, where their sight and hearing is also tested. Seatbelts are compulsory. Drinking alcohol and the use of cell phones while driving is prohibited. Cars have licence plates so they can be identified. None of these rules can be interpreted as an infringement on the presumption of innocence. At the same time, all of this information could be relevant in case of a car accident. In the same way, obtaining information on all beneficial owners related to an entity, checking that they are not related to any criminal or that there aren’t other red-flags (similar to checking a driver’s sight and hearing) cannot be considered an infringement of the presumption of their innocence, or as impugning their good faith or honesty.
This is somewhat similar to how airport security helps to prevent acts of terrorism, except in this case by preventing the economic and human cost of financial crimes. Both airport security and beneficial ownership transparency apply to individuals who are not viewed as either criminals or terrorists. One of the arguments against public access and collection of beneficial ownership information on all individuals related to an entity is that it affects compliant and honest citizens who have done nothing wrong. A simple counterargument is that the vast majority of airplane passengers are not terrorists, but everyone is still required to go through airport security. This comes at some cost in terms of the additional time spent by passengers as well as the staff and infrastructure required – but the cost is offset by the prevention of greater, even more costly harms.
One of the likely reasons why millions of people agree to or at least accept the discomfort of airport security (which includes affecting their privacy as every item of their luggage can be checked) is the immediate relationship between terrorism and the loss of life. By contrast, beneficial ownership transparency is perhaps perceived as a less important, urgent or worthy “privacy-affecting” measure because it has a more indirect link to the violation of human rights. However, the fact that the link to beneficial ownership transparency is more indirect does not mean that it is irrelevant.
Although the link between beneficial ownership transparency and human rights violations is indirect, the consequences and effects can be much broader, when considering all the financial crimes and unfair situations caused by secrecy. In economic costs, the State of Tax Justice in 2023 estimated that countries will lose US$4.8 trillion in tax to tax havens over the next 10 years. The UN estimated in 2018 that the global cost of corruption was at least US$2.6 trillion, or 5 per cent of the global gross domestic product. All of these resources are critical to pay for fundamental human rights – health food, education, housing, a fair trial, and many others.
Although harder to quantify, financial crimes such as corruption also have a human cost. Corruption led to the deaths of 52 people in 2012 in a factory fire in Bangladesh, just as it did for almost 200 young people who were trapped at an illegally held music concert called “Cromañon” in Argentina in 2004. More than 40,000 people died in the 2023 earthquake in Turkey due to poor construction regulation and corruption, and Lebanon’s port explosion killed more than 200 people due to illegally stored chemicals.
Claim: Some human rights organisations and activists distrust what they believe governments will really do with the collected information, eg target vulnerable populations or political opponents.
Our response: State authorities aren’t necessarily the problem. Oligarchs, high net worth individuals and entities who are often more powerful than countries, pose a bigger risk to democracy, equality and the rule of law. A no-threshold approach is a way to protect minorities and vulnerable individuals by ensuring that powerful individuals won’t be able to escape the rule of law by creating complex ownership structures.
Criminal law, constitutions or human rights conventions are a way to limit state power. In the past, an absolute monarch could dispose of anyone’s life or property. Criminal law, or human rights law, limits absolute power. The former-king-now-democratic-state must now comply with a fair trial, equality before the law, prohibition of torture, access to information, etc.
From a historical perspective, the ruler had absolute power, while individuals who were vulnerable and powerless organised themselves to limit the King’s or state’s power.
The 21st century is complicated by the fact that there are high net worth individuals, oligarchs and multinational companies that have far more power than countries: they have more capital, more media power, armies of enablers to escape paying taxes, can bankroll violent actors and bankrupt journalists investigating their affairs, and lobby or bribe legislatures to engage in rent-seeking.
Complete beneficial ownership information is about obtaining information about these powerful individuals who set up complex structures to escape the rule of law. It is a way to give more tools to authorities and to everyone else with access to beneficial ownership information, in the process helping to protect minorities and vulnerable individuals.
Even if there is mistrust on how authorities will use the collected beneficial ownership information, the beneficial ownership data will mostly refer to the (more powerful) individuals who are able to afford setting up companies and trusts, not vulnerable and discriminated populations on low incomes.
Some argue that some states are corrupt, or are dictatorships or autocracies, and that a beneficial ownership definition without thresholds would give them even more power to be abused. Unfortunately, those states are most likely already (legally) allowed to collect beneficial ownership information without applying thresholds, or to use other ways to obtain confidential information or coerce their citizens.
Major financial centres where the rule of law is respected and where democracies do work, should start collecting complete beneficial ownership information. This way, democracies will be able to prevent oligarchs and dictators from creating entities and holding assets in these democratic financial centres, or will at least be aware of their interests and control, in case sanctions are to be enforced.
Claim: All databases can be hacked. Collecting and centralising a trove of personal data on individuals related to legal vehicles creates a high hacking risk.
Our response: Although all systems could possibly be hacked, this has not stopped people from using banks, apps or password storage services. There are multiple privacy enhanced technologies that could be applied to reduce the risk of hacks or misuse, and to run analytics without sharing confidential information.
Data obfuscation tools such as zero-knowledge proofs, differential privacy, synthetic data, and anonymisation and pseudonymisation tools which alter, create noise or remove identifying details.
Encrypted data processing tools, such as homomorphic encryption, multi-party computation, private set intersection and trusted execution environments, which allow data to remain encrypted while being used.
Federated and distributed analytics, which allow data to be pre-processed at the data source so that only the summary statistics or results are transferred.
Data accountability tools such as threshold secret sharing, and personal data stores.
The Bank for International Settlements Innovation Hub’s Nordic Centre in 2023 published a report on Project Aurora, a proof of concept that explored new ways of combating money laundering with a combination of payments data, privacy-enhancing technologies, artificial intelligence and enhanced cooperation across institutions and borders.
Claim: Authorities are already overwhelmed with data and are often unable to process it effectively. There is no point in filing even more data with authorities because they won’t be able to use it.
Our response: The complete collection of beneficial ownership data is supposed to be handled by technology, algorithms, big data analysis, etc, and not necessarily through manual analysis. Complete data would create a deterrent effect, just as the implementation of automatic exchange of bank account information did.
The potential availability of complete data on all foreign bank accounts led to more tax revenues in many countries through voluntary disclosure programs (taxpayers voluntarily declared their foreign accounts and paid reduced fines, before the information was exchanged). Apart from the deterrent effect, even if data isn’t processed immediately, it could also be used in the future – many financial crimes have a statute of limitations of 5 or perhaps even 10 years, giving enough time for authorities to make use of it.
At the same time, there is an exponential growth in technological capabilities around data storage, data matching and mining, and the processing of big data – all the while often becoming more cost-efficient. Just because an authority cannot afford data management functionalities today, does not mean they won’t be able to do it tomorrow. The prevalence of under-resourced authorities is not necessarily an argument against the collection of beneficial ownership information without thresholds, but rather an argument in favour of giving public access to information so that other stakeholders, including financial institutions, journalists, civil society organisations, researchers and foreign authorities can also use and process the data.
An effective beneficial ownership framework would secure sufficient information to identify all individuals who may turn out to be relevant, after running advanced analytics to detect undeclared relationships and other red flags. Most of the proposals of this brief originate from the Tax Justice Network’s Roadmap to Effective Beneficial Ownership Transparency. This new report explains why these proposals are necessary.
In a nutshell, the proposals include the following:
1. All legal vehicles should fall within the scope of registration – without exceptions.
2. A “necessary” data approach should be applied, rather than a “small” data approach. This would ensure that all individuals who are related to a legal vehicle are identified whenever they:
a) Have control, ownership or derive benefits from a legal vehicle;
b) Have at least one share, vote, right to benefits, interests or exposure through financial instruments (ie without applying thresholds); or
c) Have control via other means based on a non-exhaustive list such as power of attorney over the entity or its assets.
3. All “necessary” details should be required. In addition to basic identity details (name, address, nationality, date of birth), more details should be collected, such as: politically exposed person (PEP) status, tax residencies and nationalities (eg based on golden visas), identity of direct family members, price or value or reason for becoming a beneficial owner (eg price of transfer of shares), source of beneficial ownership (eg transfer of shares, apportionment as trust beneficiary.)
4. The full ownership chain should be obtained and verified, up to each individual with at least one share.
5. Charge fees for verification of complex structures. As a way to discourage complex ownership structures with too many layers and shareholders (which may increase costs for those collecting beneficial ownership information), financial institutions and beneficial ownership registries should be allowed to charge fees per layer and per shareholder for any entity that wishes to be incorporated or open a bank account.
6. Proper verification responsibilities. Countries should take an active role in beneficial ownership registration and verification by having the beneficial ownership register collect information on the full ownership chain down to each beneficial owner with at least one share, as well as cross-checking data and applying advanced analytics to detect red-flags (eg based on individuals’ declared income, income patterns for the neighborhood where the person is based, etc). This would reduce costs for financial institutions, which should be required to conduct some additional verification (not generally available to authorities) such as checking who administers the bank account, withdraws money from an ATM or from whom and to whom bank transfers are made.
This year our work featured in more than 314 broadcasts, 2,745 online media mentions, and 246 print pieces in over 140 countries, and saw more than 300,000 visitors to our website.
To help you catch up on everything you may have missed through the year, we’ve compiled a quick list of our most read pieces in 2023.
Not surprisingly, our most read report was the State of Tax Justice 2023 report, which shows countries will lose US$4.8 trillion in tax to tax havens over the next 10 years if they stay the course on global tax policy.
Our most viewed country profiles are perhaps no surprise: the United Kingdom, followed closely by Mauritiusand Switzerland. Indonesia made a surprise appearance in fourth place, while the Netherlands was our fifth-most viewed country profile.
Three of our cornerstone topics also saw significant interest:
Welcome to the latest episode of the Tax Justice Network’s monthly podcast, the Taxcast. You can subscribe either by emailing naomi [at] taxjustice.net or find us on your podcast app. All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here. We’ll soon be launching our new podcast website, so look out for that!
In an extended Taxcast edition this month, a century of tax rule setting by the former imperial powers has been overturned: we look at the UN vote on global tax reform. Taxcast host Naomi Fowler follows events at the UN, the failed efforts to block it and explores what it all means with Alex Cobham of the Tax Justice Network.
~ #138 Overturning a 100 year legacy: the UN tax vote
“If the time of crisis imposes the time of change, then it’s time for cooperation to take precedence over competition. It’s time for international solidarity to take precedence over particular and selfish interest in the short term. African people are tired of numbers about assistance for development. They do not request more assistance. They request every partner running business, the physical or digital, individuals and companies making profit should pay the right price, the fair and just percentage in terms of tax. Then we could keep our promise to transforming our world, to ensuring the world we want, the future we want is a reality.“
~ UN Representative from Cameroon
“It’s a century waiting to have a globally inclusive body to set tax rules to throw over the decisions made by the League of Nations in the 1920s and 30s that we’re all stuck with the consequences of today. We don’t actually need tax rules that were set by the imperial powers, honestly, we can do better.”
You can WATCH the vote at the UN here (the discussion on tax matters starts around 35 minutes)
Here’s a summary of the podcast:
Naomi: Hello and welcome to the Taxcast, the Tax Justice Network podcast. We’re all about fixing our economies so they work for all of us. I’m Naomi Fowler. On the Taxcast this month:
Clip 1: “African people are tired of poverty, they do not request more assistance. They request every companies making profit should pay the right price, the fair and just percentage in terms of tax.” Clip 2: “The committee is now voting on draft resolution L18 Rev 1 entitled Promotion of Inclusive and Effective International Tax Cooperation at the United Nations.”
Naomi: It may not sound like it, but this is a historic vote at the United Nations on where the power lies for global tax rulemaking.
Clip 3: “The voting has been completed. Please lock the voting machine. The result of the vote is as follows: in favour 125, against 48, abstentions 9. Draft resolution A/C2/78/L18 REV1 is adopted.”
Naomi: Some nations tried their best to block it, but a landslide majority of nations voted to catapult the world into the next steps for fairer rulemaking on global tax. It’s all about who gets to decide, and how, and where.
UN representative from Nigeria: For developing nations this resolution represents a beacon of hope.
Naomi: This is the UN representative from Nigeria introducing the draft resolution before the vote on behalf of the Africa Group.
UN Representative from Nigeria: By standing together today, we commit not only to fairer tax systems, but also to a collective future where economic justice are not mere aspirations but achievable realities. The path is clear and the benefits are manifold.
Naomi: And here’s the South Africa representative.
UN representative from South Africa: For many Africans, fulfilling the UN Sustainable Development Goals is a matter of life and death. Unfortunately, their ability to meet these aims is hobbled by illicit and hidden movements of capital that amounts to vast billions each year. It is high time that the international community addresses this injustice in global taxing rights that is impoverishing millions, which goes back to the days of the League of Nations, when most member states were colonies and which has been perpetuated by the monopoly that rich country clubs have held over international tax rulemaking.
Naomi: We know that if we continue on our current trajectory where the ‘Club of Rich Nations’ at the OECD wields the power on tax rules in their own interests, countries are on course to lose 4.8 trillion US dollars to tax havens over the next decade. This vote aims to avoid those kind of astronomical losses by doing things differently through the United Nations and establishing a UN Tax Convention. Taxcast listeners will remember that in 2022 countries at the UN agreed by consensus to the preparations that have led up to this UN vote. So what have 125 nations just voted for? Alex Cobham of the Tax Justice Network:
Alex: So look, what’s happened, you know, last year there was agreement to move forward with intergovernmental discussions, so the real thing that it required was this report from the Secretary General to look at the options and then a debate in the General Assembly this year. Naomi: Yes, and I covered that in the Taxcast. It’s the one called the day global power shifted. I’ll put that in the show notes. So the report was done, yeah.
Alex: Right, so that’s happened, and off the back of that a new resolution was brought forward by the Africa Group. And this resolution really does two things. So it sets the commitment to work towards a framework convention on tax. And in the immediate period, really from January to August, it says we will create, basically a committee of all of the UN member states in order to create the terms of reference for those negotiations. So it’s all of the countries of the world agreeing the terms of reference for the negotiation on a framework convention. And the idea is that will then be brought back to the General Assembly in September, and then the negotiations would go forward. So last year was kind of creating the context, saying this is what we’re looking at. And this year is, we’re kind of into the hard and fast steps, this really concrete committee to take it forward, to create the terms of reference. So we’re on the road, you know, we have a resolution now that commits absolutely and without equivocation to negotiating a framework convention, a legally binding outcome.
Naomi: Okay. We’re going to look at the no voters and their motivations in a minute. But why did nations agree by consensus last year, but this time it went to a vote?
Alex: Yeah, so, this is sort of UN technicality, last time they didn’t vote so it’s UN consensus, so nobody objected hard enough to say, let’s take this to the vote. So there were some objections, registered or reservations from some OECD countries but nobody wanted to resist enough to have a vote so it passes by consensus and that’s effectively as close as you get to unanimity. This year they wanted to stop it. And they fought really, really hard all the way through trying to stop it and only the almost complete unanimity of the G77 countries made sure that we had such an overwhelming result in favour.
Naomi: Right, and the G77, that’s a coalition of so-called ‘developing’ countries, so it was a landslide really, those 125 nations voting in favour of the resolution represent 80 percent of the world’s population. It’s a historic vote too, the last attempt to address global power imbalances through the United Nations was spearheaded by Jamaica in the 1970s, along with other newly decolonised nations. Back then, they passed the UN Declaration on the Establishment of a New International Economic Order, and the aim of that was to reinforce the rights of all national governments to control multinational capital and specifically exercise democratic power over multinational corporations. The backlash against it from the most powerful nations dissuaded any similar attempts for nearly 50 years, until now. Here’s the representative from the Bahamas at the UN:
UN Representative from the Bahamas: This resolution is an important step towards an inclusive and equitable global tax system. For over six decades, the international tax policies formulated and dictated by the OECD neglected or failed to address the inherent challenges and the differences in development dynamics faced by the global south. Throughout these decades, developing countries have grappled with the disequilibrium of the international financial architecture, coupled with inconsistent contradictory tax and financial services policies, which have stifled economic growth. Mr. Chair, this resolution envisions a future where services and trade benefit all countries fostering true inclusivity and cooperation. It will enable countries, particularly in the Global South, to actively participate in shaping international tax norms, while creating equity and development capacity where it did not exist before. It will also ensure the development of protocols to combat illicit tax related illicit financial flows, which cause the loss of hundreds of billions of dollars in tax revenue annually. By addressing this issue we are taking a significant step towards preserving the financial integrity of vulnerable countries while generating more revenue to finance development. Mr. Chair, the overwhelming support for this resolution is a clarion call, indicating that the majority of the world recognises the inequalities of the current international tax regime and are victims of its arbitrary and inconsistent rules. In this vein, the Bahamas welcomes the passage of this resolution as an aspiration for equity, inclusivity, sustainable development and tax cooperation.
Naomi: The Bahamas co sponsored the draft resolution and we’ll talk a bit about their position later, which is interesting. Before the main vote happened on the draft resolution, Promotion of Inclusive and Effective International Tax Cooperation at the United Nations, the United Kingdom proposed an amendment to that draft resolution. Here’s the UK representative.
UN representative from the UK: During negotiations, the UK and others have sought to engage constructively to bridge the range of views and find a way forward that is in line with the ambition and which commands consensus. That is why we are now proposing an amendment to the resolution, which would change the text to just refer to a framework, rather than a framework convention.
Naomi: OK. So, what was the UK up to there? And why did they want to change the text to refer to a framework rather than a framework convention? What were they doing?
Alex: So, the UK brought forward this amendment. It’s not quite clear why it was the UK who brought it forward, because it was really the European Union’s position but I think just, you know, some OECD members trying to block things together. So the UK brought forward an amendment to strike out the word convention, basically from the resolution, in order to kind of get to a position where you have no legally binding outcome at all. Naomi: Right, so in a way they were happy to talk shop, but not if it actually meant it was legally binding?!
Alex: I mean, that seems to have been the position, which is remarkable. Because bearing in mind, these are countries that sometimes complain that the UN is a talking shop, and they use that as an argument for why they shouldn’t do things at the UN. And in this case, they were demanding that the UN be a talking shop and have no possibility of being anything else so, yeah, it wasn’t, it wasn’t a very compelling position, I think, and certainly the Africa Group gave it very short shrift, and rightly so. Naomi: Yeah, here’s the Nigerian representative’s response to that and there’s not much doubt what he thought about the UK’s intervention! UN representative from Nigeria: Thank you very much, Chairman, and I would like to thank the UK delegation for its engagement and for its, uh, approach of trying to alter the resolution. The position of the African Group is that the amendments being proposed by the UK delegation aim to, or would certainly preserve a restrictive status quo where developing countries remain marginalised in terms of international discourse. This approach denies us a voice in vital areas of agenda setting, norm creation, and decision making. The African Group, therefore, categorically rejects these amendments and strongly encourages all delegations to vote against them. We instead invite you to support and vote in favour of the draft resolution as it is, affirming our commitment to equity, inclusiveness and a global tax system where every member has an equal say.
Naomi: Well, that attempt by the UK to amend the draft resolution didn’t work. It was heavily defeated. Listen here to the results of the vote on their amendment.
UN representative: Delegations are kindly requested to indicate their votes. Those in favour of the proposed amendment contained in document A/C2/78/CRP 7, please signify. Those against and abstentions. The committee is now voting on the proposed amendment to draft resolution L 18 REV 1, as contained in document A C2 78 CRP 7. Will all delegations confirm that their votes are correctly reflected on the screen? The voting has been completed. Please lock the voting machine. The result of the vote is as follows in favour 55 against 107 abstentions 16. The proposed amendment contained in document CRP 7 is not adopted.
Naomi: So, that amendment got nowhere. Next, the United Nations voted on the Africa Group’s now unamended draft resolution. Just before that, the US representative gave a statement on why the US was going to vote against it. Let’s listen to a bit of that.
UN Representative from the US: The United States regrets that it cannot join consensus on this resolution and wishes to explain the reasons for this decision before the vote. The content of the resolution and the process followed over the course of negotiations have resulted in outcomes that are likely to duplicate and undermine existing intergovernmental negotiations on international tax cooperation.
Naomi: Duplicate and duplication are words you hear a lot from the no voting countries.
UN Representative from the US: The resolution has failed to achieve the consensus necessary to strengthen international tax cooperation for the benefit of all countries. Without broad consensus among countries, any process is unlikely to strengthen international tax cooperation or achieve meaningful results.
Naomi: Hmm, well, the United States has often opted out of international agreements on tax rules as they’re decided currently, so, yeah..! Next, the US representative went on to claim that tax rulemaking as it’s done now is all just fine. Nothing to see here!
UN Representative from the US: Negotiations of the Inclusive Framework occur in a setting in which 145 jurisdictions provide input and decisions are made by consensus. This approach affords every member a real voice in negotiations and decision making, which allows for the development of solutions with broad consensus that have a better chance of standing the test of time.
Naomi: So she’s sort of saying 145 jurisdictions agree tax rules together and it’s all great?!
Alex: So, you know, let me not call anyone a liar, you can only conclude from that that the U.S. delegate was exceptionally badly briefed, you know, the Inclusive Framework, and this is on the record by multiple participant countries, simply does not provide an effective voice to most of the Inclusive Framework members. In fact, a number of OECD country members, whatever that is, 38 or something members of the OECD, a number of them have expressed serious frustration at the failure of the process to be inclusive, even of their voices. But apart from the practicalities, apart from all the people who’ve complained that this isn’t inclusive and highlighted – as ATAF, the African Tax Administrators Forum has done – highlighted that the processes for consensus is quite close to coercion, that sometimes they would be delivered documents at 10 o’clock at night, being told that if they had not raised an objection by first thing in the morning they would be assumed to be joining the consensus, right? Now, even for countries with very high capacity in their tax authorities and finance ministries, that’s a completely unreasonable ask and that doesn’t generate any genuine consensus at all. For countries which in many cases are seriously capacity constrained and operating in different time zones, that’s just outrageous, you know, and it’s clearly not consensus by anyone’s definition. But look, even setting aside those questions about how the Inclusive Framework fails to work in practice, you only have to look at the governance to understand that what the US delegate said is completely wrong. There is no governance, no rules of procedure for the Inclusive Framework, so there is no basis on which the Secretariat legally is required or even can take the opinions and reflect them of the members of the inclusive framework. So if you look through the OECD’s governance, what you come to is the position stated that legally the secretariat is bound by, which says that they must prioritise the views of OECD members over any other country and that has to be the determinant of all the work that they carry out. And that’s equally true for the Inclusive Framework as for any other thing that the OECD does. Now, if you wanted, you could think about changing the OECD’s governance, you know, you could create structures and rules of procedure where they could have transparent voting, where there could be decision making by the members of the Inclusive Framework, not by OECD members. But by the time you’ve done all that, you’d effectively have created a United Nations parallel. So there’s kind of a question, you know, why would you do that when we’ve already got the United Nations?! We’ve got the UN. We just need to give it a space to deal with tax. Naomi: Ok. So, next, nations at the United Nations voted on the Africa Group’s unamended draft resolution. Here it is:
UN Representative and interpreter: The committee is now voting on draft resolution L18 Rev 1 entitled Promotion of Inclusive and Effective International Tax Cooperation at the United Nations. The voting has been completed. Please lock the voting machine. The result of the vote is as follows in favour, 125 against, 48 abstentions 9. Draft resolution A C2 78 L18 REV1 is adopted.
Naomi: Right, let’s take a look at the politics and the power relations behind all this. Let’s start with the nations which voted no, voted against the resolution. The first thing to say is that the 48 countries who voted no to the resolution are A) mainly OECD member countries, which represent only 15 percent of the global population and B) those no voting countries are responsible for three quarters of all countries’ losses to tax havens. That puts things in a different light, doesn’t it?! And that’s complicated by the fact that the tax benefits from reform would be good for all nations, not just the world’s poorest ones. And that’s because the wealthiest countries in the world actually lose the most tax revenue each year as a result of the way international tax rules currently work under the OECD. Poorer nations lose the biggest proportion of their potential tax revenues, so they’re hit very hard and they can weather that hit less than wealthier nations. So if wealthier nations also lose out, why did they vote no? Here’s Alex: Alex: Well, a cynic might say that those countries actually don’t have an interest in fixing the problem. Although they are the biggest losers in terms of absolute revenues, they are also the home countries for the multinationals and professional services firms that are responsible for most of the cross border tax abuse in the world. I think that’s probably not fair. Somebody even more cynical might say, these countries do kind of want to fix the problem, but not that much. Not enough to actually give up the disproportionate power that they have at the OECD. So they’d rather have this process at the OECD continue to fail to solve the problem, but it being their process and their organisation rather than a globally inclusive one. And again, you know, I think, or at least I hope, that that’s probably unfair to, at least for quite a few of those countries. So I think maybe the fairer reflection would be to say there’s two things going wrong here. So one is that these countries governments are not under sufficient public pressure from their own citizens demanding that they do more about the problems of tax abuse. And that’s something that we, the tax justice movement should be thinking about and how do we, how do we change that dynamic when these losses are so huge and responsible for so much lost public services, so much excess inequality in these rich countries, as well as everywhere else? So that’s one part. I think the other part is countries are afraid of what they don’t know. You know, it’s not countries, it’s people, it’s individuals, it’s, it’s government officials and the ministers that they brief, and they’re comfortable at the OECD, you know, they know it doesn’t work, and they know that when the US and France, the biggest member and the host country have a bilateral negotiation, everybody else pretty much has to accept the results because it’s the opposite of a democratic, uh, organisation, but they’re comfortable in it, it’s what they know. And they worry, particularly finance ministries who never engage at the United Nations, they worry that if they go somewhere else it might all be terribly different and scary. And so I think there is a process, you know, in the negotiations generally of people just getting kind of acclimatised, people from finance ministries and tax authorities who aren’t normally in UN spaces actually understanding that this is a place that’s got real possibilities, that the transparency isn’t something to be afraid of, actually it can help them get much better outcomes, and hold each other accountable, and allow their citizens to see that they are taking the positions that they say, outside of the meeting that they’re going to take. And I think, you know, genuinely, I think we’re going to get on a road where a lot of OECD countries really embrace this process. And we can kind of move forward to something much, much more effective, as well as much more inclusive than we’ve had at the OECD. Naomi: Okay. Let’s look at the Yes voting countries. These efforts to move international tax rules setting to the United Nations have been led by the Africa Group and proposed by Nigeria. Co-sponsors of their draft resolution include Bahamas, Bolivia, Guyana, Russia, Thailand and Tonga. Russia’s interesting. Why Russia? Here’s the Russian Federation representative addressing the assembly before the vote:
UN Representative from the Russian Federation speaking through an interpreter: Mr. Chairman, dear colleagues, Russia is in favour of strengthening international cooperation in the area of tax matters and making it truly inclusive. We hear what the African Group is saying. The existing multilateral cooperation mechanisms within the OECD are neither inclusive nor effective. In this regard we support expanding the tax discussion in the UN and creating an intergovernmental platform with universal membership to discuss specific matters. The obstructive stance taken by most OECD countries, the position of developed countries is bewildering. Meeting the challenge of mobilising internal resources without establishing a fair and inclusive international tax system is not possible. Maintaining the status quo will not enable countries of the Global South to ensure self sufficiency or to decrease their dependency on external financial assistance.
Naomi: Here’s Alex.
Alex: So, I mean, you would like to think that, you know, Russia being aware that it’s very seriously exposed to financial secrecy that drives not just significant tax abuse, but also, you know, the very obvious problem of corruption, that it’s seen the light. I don’t think that’s, certainly not what we’ve really heard, but it’s a calculation that, you know, the G77 countries have really, felt so oppressed, and have been oppressed really, are currently being oppressed by the way the international tax rules operate by their exclusion from any effective voice in that process and the continuing extraction of profits by companies from OECD countries, so Russia sees an opportunity to align itself with the G77 and say, you know, we are much better friends of yours than the United States or the European Union. And that’s, you know, that’s fairly cynical, but it’s not surprising. And, you know, if you’re on the other side of that, if you’re the United States or the EU or the UK, you know, you should really think about whether, let’s imagine that you actually think the OECD is delivering something good, even if you did, which, you know, nobody could, but let’s say you did, you’d still have to think quite hard about where the G77 very clearly doesn’t take seriously the claims of the West to be kind of defending human rights and to be on the good side you know, this is such an obvious opportunity to say, in effect, you know, you’re right. And we can see that we’ve done this wrong and that we’ve acted unfairly for decades now. And it’s time, you’re right. It’s time that you and everyone had a seat at the table and, you know, get on the right side of history, right? You know, this is a process that’s going to happen anyway so it wouldn’t actually have cost very much to say, you know what, we’re going to champion it, instead of being the people who are trying to spoil it at every step. So just even on a kind of, you know, a very narrow political pragmatism basis, you think this was a bad decision by most of the OECD countries who opposed.
Naomi: Hmm. And looking at some of the, the other Yes voters, Colombia and Chile, they resisted a lot of pressure as OECD members wanting them to vote against or abstain and that’s quite an interesting and quite a brave stand they took, I think.
Alex: Yeah, I think the support for this is really kind of quite telling. Thinking of Chile and Colombia, you know, what they’ve done is exceptionally brave and important. I’ve just been in Oslo, and you know, Norway abstained, right, as another OECD member. They were under enormous pressure to vote to vote against, and to stick with the OECD bloc, and so for them even to move to abstention, never mind voting in favour, you know, just to get to abstention was really politically, felt costly for them. And this is a country that’s been, you know, an absolute champion of this kind of inclusive international tax cooperation and work on financial transparency for, you know, at least the last 20 years, so, you know, you can only imagine the pressure that the newer OECD members like Chile and Colombia were under so it’s, you know, it’s all the more admirable that they took this stand. I think if you then look at some of the other supporters, even the co-sponsors, you see some unusual names when you’re thinking about kind of international tax cooperation. So one of the co-sponsors was the Bahamas, and the Bahamas is a country that’s been you know, frequently on the non-cooperative jurisdiction lists of the European Union or other kind of tax haven blacklists, and they’re always painted as an opponent of progress by those institutions. It is true that, you know, from our perspective, the Bahamas isn’t sort of perfect, you know, it’s got some work to do to become a bit more transparent and make sure it’s not kind of facilitating profit shifting, but it’s far from alone in that, and of course the Bahamas role is much, much smaller than that of some of the big OECD members, whether that’s the Netherlands or Ireland on profit shifting or the United States on financial secrecy. And yet the Bahamas ends up on these lists when no OECD member ever does. So for them to co-sponsor this is a signal that I’m sure they can imagine this process will lead to some further constraints on how they can operate, but clearly they’ve decided it’s much better to be part of a global process in which their voice can be heard, even if the outcomes in some cases may be to require them to meet certain standards than to be outside of a process forever at the OECD or the European Union, wherever, where they’re only ever going to be painted as criminals, you know, and if you look across the Caribbean, actually, the support was really comprehensive, I mean, it was kind of impressive given that that’s a region that’s often felt like international tax co-operation is just another word for coming to attack us, right? So I think you can see a shift in dynamics here. Countries at different income levels from different regions of the world coming together because genuinely there is a central demand in this which is for everyone’s voice to be heard, not just this this group of OECD members.
Naomi: And the countries that chose to abstain, again, interesting. There’s nine of them, so I’ll run through them quickly. Norway, Alex has talked about, then there’s Armenia, Costa Rica, El Salvador, Iceland, Mexico, Peru, Turkiye, and the United Arab Emirates. Let’s talk about some of the no voting countries, all of the EU countries voted as one block against the resolution. Here’s Spain’s representative at the UN speaking on behalf of the 27 EU countries after the vote. It’s that duplication word again, but they also seem to think that all that’s needed is to tweak the OECD rich countries club to make it more democratic. Have a listen. what you’re hearing is the UN interpreter interpreting from Spanish to English. UN Representative from Spain, speaking through a UN interpreter: The EU and its member states recognise the important role played by the UN, including, but not limited to, its efforts to support developing countries in mobilising domestic revenues and to increase their ability to finance their development strategies. The EU and its member states are also committed to the ongoing work of the OECD and G20 inclusive framework, which strives to establish ambitious reforms to the international tax order, and its increasing number of members. We consider it is important to continue developing these global tax standards and avoid duplication of work or inconsistent outcomes, including agreements that have been built over the course of many years and that have global benefits, however imperfect they may seem. However, we recognise that many UN member states have noted a lack of inclusivity in the existing international agreements, both in terms of their process and also in terms of establishing the agenda. We are resolute in terms of committing to improvements in this regard, both in terms of consultations and with member states and also respective international organisations, the EU and its member states support the efforts of the global framework to improve the inclusiveness of its membership.
Naomi: You’ve talked a bit about the EU already, voting as one bloc against the resolution. And you can see that there is some sympathy for the objections of many nations that they’re not getting a fair say in the making of global tax rules. So, they acknowledge there’s a lack of inclusivity, but still voted against as a bloc. It’s in theory, somebody is able to break out of that bloc and say, no, I’m going to vote for it? Or I’m not quite sure how the EU works in the UN for this kind of vote?
Alex: Yeah, so it doesn’t always, but it very often operates as a bloc, and, you know, at the second committee where this resolution came, that’s typically how it operates. What was different this time though is that the EU finance ministers had met in, I think, September and gave a recommendation that EU members should support option three, this non-binding framework without a convention. That was then interpreted by the lead EU member in the negotiations of this as an absolute outright position that couldn’t be changed. Now that EU member that led the negotiations was France, which of course is the host country of the OECD and always the most aggressive defender of the OECD. So I think the EU got themselves stuck into a position that they didn’t actually necessarily mean to take, but under a combination of pressure from the OECD itself and then from France, ended up tying everyone’s hands. I think there’s quite a bit of anger at France about that. And delegations understand how much geopolitically it’s kind of cost them to be on the wrong side of this and to fail to stop it anyway. So we’re already hearing that EU members will be actively participating in the, in the committee stage that will begin in January and February. We’ll see if that’s an EU bloc position or if it’s much more open and positive members will be able to engage more positively. My guess is they’ll try and keep a bloc position, but there’s no way it’s going to be dictated by France next time, that’s the message that’s coming. But one thing to say, you know, for the EU, I think what needs to happen really is a shift in understanding. You know, I heard the head of tax at the European Commission the other day saying he just didn’t know what the UN convention would include and that’s why it was difficult for them to take a position. I think, again, that suggests he simply hasn’t been briefed because there’s a lot of material out there on what could be included. Actually, you know, the case you can make to the EU is very clear. Going back at least to 2000, the EU has been a leader in a whole set of areas, you know, it was the EU that took forward multilateral automatic exchange of information. The EU has really led on beneficial ownership, at least up to the European court ruling that’s put that in a bit of jeopardy. It’s leading now on public country by country reporting from July this year. That will be a requirement, not perfect, but you know, a big step on the road. And the European Union has led in efforts to try to get a type of unitary taxation with formulary apportionment within the European Union itself and that’s still something they’re still trying. All of their work across each of those areas has been held up when they’ve tried to make it fully multilateral at the OECD or the related institutions, the Financial Action Task Force and the Global Forum. All of those things have been blocked by the biggest OECD member, the United States, and they’ve only ever moved when the United States moves, so when Obama requires automatic information provision to the US, it allows the EU to get the OECD to deliver a multilateral standard for automatic information exchange. When the US refuses to have public registers of beneficial ownership, then FATF the Financial Action Task Force can’t do it either and everybody else is stuck waiting for the international standard to approve. If you’re the EU, you ask yourself, am I okay to get blocked every time by the United States, always and only ever able to go at the speed that whichever US administration is in power is willing to go? And you can see it in the current tax reform negotiations too, when, you know, under Trump one thing was possible, under Biden, another thing was possible, and it was almost irrelevant what the rest of the world thought. So everyone has spent all of this time doing what the U.S. has wanted them to do, with the net result that we will have nothing because the U.S. ultimately is going to say we can’t do it, and so no one else is doing it. The EU has to at some point think, is it possible that in a different setting, perhaps a more transparent and democratic one, we might actually be able to support the progressive things that we want to happen, happening multilaterally, that the US opposition could be set aside or overcome in that context in a way that it can’t be at the OECD? Because the OECD is so completely dominated by the US, you know, to the extent that the OECD cannot even say the United States is non-compliant with the Common Reporting Standard for automatic information exchange, even though the United States position is explicitly that they have not signed and will not sign ever, nor provide automatic information exchange, the OECD still can’t actually say that they’re non-compliant because that would be too controversial. Is this the institution for the European Union to set tax rules, to look for multilateral progress? I mean, I think a kind of a cold analytical view of things would suggest that this really is not the future for the EU’s hopes. And the UN convention creates exactly a space in which they could really move forward that agenda. The European Union has a lot to gain from this. It will be a way of opening the doors to the agenda that they’ve had for a very long time, but they need to get comfortable with it and stop feeling quite as afraid of the risks, as they would see it, of allowing countries in the G77 to have a voice as well.
Naomi: When it comes to the United Nations current role in tax governance at the moment I think it’s limited to an expert committee of 25 people who are nominated by member states, but they conduct business in their own capacity, I think. So what do you hope could happen now as a result of this vote to expand and develop its capacity?
Alex: I think it’s worth saying, actually there is quite a lot of tax capacity in the UN system. So the UN Tax Committee that you’ve mentioned, that’s one piece. And yeah, it’s an expert committee, so the experts are nominated by countries, but they are not supposed to be national representatives. Although very often when you see the OECD people blocking things, it feels very much that their role is representative. But you know, that committee, even as it stands, and even with relatively little resources, has actually done some really impressive work, particularly in the last few years. You know, they’ve come up with treaty articles that really address the problems of digitalisation in a much quicker and more elegant way than anything that the OECD process is going to deliver. They’re working on things like wealth taxes now, so they’re kind of pushing the horizons of where things can go, so we shouldn’t downplay what they’ve already delivered, even with the constraints that have been put on them. But then you have, you know, UNDP does a lot of work as part of Tax Inspectors Without Borders, collaborates with other institutions, supports national governments in their tax work. UNCTAD does a lot of work on the tax abuse of multinational companies. The UN regional economic commissions, especially the economic commission for Africa have really been, you know, among the biggest champions of tax work. And so they’re all these parts of the UN system where actually there is significant capacity and expertise. And one, one possibility is just that you could bring together a lot of that into one place and, you know, and really without even any additional resources, you’d have a very powerful group, ready to go. Look, what the convention offers the possibility of is really going to another level. So you’d have this, this real core of expertise sitting in one place now, rather than spread around the system with all of the data ideally coming in there and, you know, being responsible for generating public analysis of the scale of the problems. You’d have the UN saying, this is how bad the problems are, we’re tracking this, and this is where the real issues are and we need to deal with this and this and this, and doing it in such a way that, you know, instead of the OECD having all the information and publishing little bits of it for people like us to pick up and do what we can with, you could make all of the information at least at the national level, public through that process, so everyone has a common basis of knowledge to work from and to take into negotiations, you know, all of that. Again, it wouldn’t take a huge amount of resources, but having it centralised around this framework body would change the whole dynamic, and in particular for lower income countries outside the OECD who really lack access to information so much of the time, which just layers on top of the capacity constraints they have too, you know, creating a central resource would be extremely progressive because the benefits would be much bigger for the countries that are currently denied, denied information and currently lack capacity most.
Naomi: Right. And in terms of what they should focus on most, should it be a place that enables states with common cause to kind of form blocs together to resist the pressure more effectively than they can at the moment from the most powerful countries and that would help them implement region-wide things or even unilaterally, it gives them more power to implement things domestically that they want to enforce when it comes to multinationals? Or should it be taking an OECD type approach where they try to push tax rules as widely as possible everywhere, according to what they’ve agreed?
Alex: In a sense, this is the set of questions for the governments of the world, you know, and, and for the first time they will be able together to consider them. But we can say, look, here are kind of the relatively quick wins, things that we can, you know, really deliver within a couple of years of negotiations. And here is some more complicated stuff, which effectively will be the agenda for the framework body going forward. What you can really do in the convention itself in the immediate protocols is more around transparency. You know, so you can take the OECD instrument for automatic information exchange and make it genuinely globally inclusive and address some of its significant shortcomings in terms of how easy it is to design income stream asset classes that are outside the reporting requirement, so you make it much better. And you make sure everyone’s included, and in particular, you allow lower income countries to receive information without immediately having to reciprocate, because you recognise, as the UN process, UN in general always does, that you have common but differentiated responsibilities, and you don’t expect everyone to do everything from moment zero. So it’s kind of, you know, significant wins there that will really generate additional revenues from the following year. We’ve also seen the injustice of, of cutting out most of the countries of the world from it so making that global and making it better will really deliver. So that’s A. You know, B, you can imagine setting a beneficial ownership standard, which the United States might not like, but more or less everyone else would be happy to aim for of transparency of the ownership of companies, trusts, legal vehicles or other sorts. You know, you could really make significant progress quite quickly on that. Similarly, I think the tipping point is probably about on us getting to public country by country reporting. And if you did that in a multilateral convention, you solve the problem that we currently have that any government like the Australian one this year that tries to move ahead comes under enormous pressure because it’s only one government. You put that in a convention and you really kind of make it politically possible to do without countries getting picked off by the lobbyists. So that’s your ABC of transparency, potentially all there in the convention. Then the question is on corporate tax, you know, we know what the ambitions are really, and this is true for OECD countries as well as others, we want multinationals profits to be declared and taxed in the places where their real economic activity takes place. So you could actually, even within the immediate convention, you could agree a shift to unitary taxation. There is a broad majority, I would say, in favour of a much more ambitious global minimum tax than this very complex and limited version that is the OECD’s pillar 2 version. So I think, we could move to a much broader and fairly shared global minimum tax at a rate of let’s say 25% rather than 15%. Now again, do you want to try and do that within the convention or you say that’s for the framework body to begin its work in a few years? And then lastly, there’s a set of kind of governance and structure questions. How would the framework body work? What kind of regular are the meetings? What kind of rules for decision making? What kind of data will it collect? What will it publish? So, you know, this is a moment, a real possibility where things are going to start becoming clear literally within the next few months as the terms of reference for the negotiations are drafted. It’s exciting times, you know.
Naomi: Yeah, it is exciting. And what kind of timescale are we looking at to the day where we’re all celebrating because we’ve got a UN tax convention?
Alex: What the resolution has agreed is the creation of a committee of all UN members that will meet, probably four times for maybe five days a time in New York. It has to deliver a draft terms of reference in August. A key point within that is there’s a bureau to be created, which will be 20 members, 20 member states, and that’ll be divided four from each of the five UN regions. So at the moment, those regional blocks are working out who will be their members of the Bureau. And the Bureau will really steer the process and be, I think, responsible for a lot of the direction and the drafting, so that’s a key thing that will become clear in February, who’s going to be in there. Then look, you know, that report in August goes to the General Assembly, there will be a debate in September, and then the next resolution will agree to take a final version of the terms of reference as the basis for negotiations to begin in 2025.
Naomi: And would it be, can it ever be legally binding because I’ve seen many UN conventions which are very commendable, and, you know, that are used for all sorts of research and reports to demonstrate where countries are not upholding their obligations, legal obligations under these conventions, but it doesn’t seem to go anywhere in terms of legal consequences, so to what extent are we talking legally binding with this convention?
Alex: You know, countries can always do what they want. Governments, governments can choose to break the law. I mean, you and I have lived through Brexit in the UK, we’ve seen our government repeatedly choose to break international agreements and laws that they are subject to. I suppose in the same way that individuals can break laws, you know, the fact that law is there doesn’t mean that nobody commits murder, but it does mean there is some accountability. And I think that’s the key thing, you know, if you look at the kind of human rights instruments that we’re often working on, you can feel frustrated that governments continually breach their human rights commitments, but there is at least a process when they’ve signed an instrument, there’s a process to hold them accountable for it. And some sense that this does over time strengthen behaviour. It reduces the degrees of violations. I think in the case of tax that the dynamic is probably significantly stronger than that. It’s more like, sort of two elements, you know. So one is things like the UN Convention Against Corruption, you know, another one in this kind of area, gives the basis for countries actually to pass a lot of domestic law and those are then held to, and perhaps held to much more clearly than, sadly, respecting the rights of people with disabilities, say, which, although people sign conventions, it’s very often breached day in day out, whereas on the corruption side you can see very specific legal changes put through by governments and then stuck to, so I think this is the kind of the immediate elements in the tax convention are of that sort. What matters, you know, yes, that it’s agreed and ratified, but actually the government then put it into domestic legislation as they do when there are successful OECD processes, though in this case everyone will have had a say, so this is already better. And the other piece is, you know, as with the UN Framework Convention on Climate Change, it creates this framework body, and that creates the space for further negotiations and for governments to commit and deliver on further actions in years to come. You can say the climate case, you know, actually a lot of what you see is, if not backsliding, at least trying not to be ambitious, but think about, you know, if you want to see the glass half full, if there wasn’t a UN framework convention on climate change we probably wouldn’t even have that process of regular meetings where governments are at least called out for their opposition for their failure to be sufficiently ambitious. So, you know, having a tax convention doesn’t mean that everyone’s going to do the right thing on tax at all. But it creates the possibility that simply isn’t there at the OECD, that we can move forward on a whole set of things and that a group of the willing can really go further and faster than if they’re on their own and kind of exposed to being picked off by lobbyists and by the pressure of one or two powerful countries who don’t want progress. So it’s the basis for really sustained and significant progress, but it’s not a guarantee. That guarantee will only come from civil society, from people in the street and people like us demanding that once it’s in place, it’s really used by our governments and making sure our governments take ambitious positions and stick to what they end up agreeing.
Naomi: Ok, so 2025 is the year to be really hopeful about that we’re actually less than, well, what, two years away, less than two years away, possibly from a historic UN tax convention?
Alex: I think there’s a question over how quickly you can negotiate it. So, you know, the most ambitious possibility if you start the formal negotiations with a really good terms of reference in January 25, Spain will host the fourth Financing for Development Summit in 2025. Could you race to a convention text in time for the Financing for Development Summit and have global signatures then? I think it’s just about within the bounds of possibility, and more realistic I think it’s a staging point and you’re probably looking at signatures in 2026. So, you know, it’s not a matter of months, it’s definitely years, but it’s such a big shift. You know, it’s a century waiting to have a globally inclusive body to set these rules to throw over the decisions made by the League of Nations in the 1920s and 30s that we’re all stuck with the consequences of today, you know, to say, we don’t actually need tax rules that were set by the imperial powers, honestly, we can do better. So I want to be impatient, I want this today, but you know, if it takes a couple of years to get us past the legacy of the last hundred, we should probably be willing to take our time just a little bit.
Naomi: Yes, indeed. And you can really hear the desire for change from the representative from Cameroon who spoke after the vote to adopt the resolution. Again, what you can hear is the UN interpreter interpreting from French to English.
UN Representative from Cameroon: We are in crisis and the planet is in danger. At the current pace, we will be in an even more dramatic situation than currently. Although we are on the edge of the abyss, there is still time, it’s still possible to save the planet, to eradicate poverty, to ensure prosperity for all in a peaceful world. If the time of crisis imposes the time of change, then it’s time for cooperation to take precedence over competition. It’s time for international solidarity to take precedence over particular and selfish interest in the short term. We must stand united with a very strong message to make sure there is no longer room for tax evasion, tax avoidance, money laundering, illicit financial flows. We count on the support of every member state because one country is not in position to combat those cancers depriving developing countries from critical resources for sustainable development. Mr. Chair, African people are tired of poverty, misery, hunger, tired of suffering from dramatic consequences of conflicts, natural disaster, tired of the narrative of corruption and that of local governance and corruption to explain the problem they are facing. African people are tired of numbers about assistance, assistance for development. They do not request more assistance. They request every partner running business, the physical or digital, individuals and companies making profit should pay the right price, the right price, the fair and just percentage in terms of tax. Then we could keep our promise to transforming our world, to ensuring the world we want, the future we want is a reality. Je vous remercie.
Naomi: That’s it for this month. Thanks for listening. Bye for now.
COP28 came to a close earlier this week. If COP is anything, it is a show, and this time, the show was exceptionally peculiar. The manicured roads of Dubai saw Bugattis and Porsches pass crowds of indigenous climate activists; there were panels on sustainable yachting next door to interventions on the climate damage inflicted by extreme wealth. Behind the Dubai skyline – a city that prides itself on its path to becoming carbon neutral – about 80 kilometers offshore, the Zakum oil field, the third largest in the middle east, extracts about 66 billion barrels oil. Like the climate crisis itself, Dubai is a place of extremes and of contradictions. Last month, Oxfam published research showing that the carbon emissions of the richest 1 percent of people are set to be 22 times greater than the level compatible with the 1.5°C goal of the Paris Agreement in 2030.
So what’s the plan?
Maybe you have shaken your head at the fact that leadership of the world’s most important climate conference was handed to the head of a petrostate in the first place — at the very least, a mildly controversial, at worst, a deliberately Machiavellian decision. You might have heard that countries, until the very last moment of the conference, were negotiating on whether to agree to phasing out fossil fuels, ultimately landing on murky language to “transition away” from them. You may have read that there was breakthrough when it comes to climate finance – the establishment of a Loss and Damage fund, a pot of money, the first of its kind, that pools resources it will dispense to lower income countries especially hard hit by the climate crisis, in order to recover from extreme climate events. The order of magnitude of needed Loss and Damage funding is in the hundreds or billion USD annually and rising – on par with the amount of tax lost every year to multinational corporations and wealthy individuals using tax havens.
Money is at the core of these and all climate policy negotiations: it is hugely expensive to finance the recovery from increasingly common extreme weather events, let alone the sustainable overhaul of a wide number of polluting sectors, and to do so quickly, across widely different contexts. In Germany, a fierce political fight over legislation to replace outdated and polluting heating systems with sustainable, but expensive, heat pumps has been raging. The shipping sector, which produces emissions on a par with countries like Germany or Japan, will likely be slapped with a levy to speed up the transition, but costs are expected to increase more for the poorest countries, which already often pay relatively higher shipping charges. For decades, the aviation industry – worth nearly US$840 billion – has successfully lobbied against a tax on aviation fuels, partly through its leverage over hiking consumer prices. Ahead of COP24 in Poland, Shell, BP, Total, Chevron and Exxon collectively spent US$1 billion on misleading publicity and lobbying ahead of the event. In 2022, floods in Pakistan caused more than US$30 billion in damage, and killed thousands.
Mosaic funding
Where money is at stake, so is tax. Large scale financial contributions from governments, corporations and individuals most responsible for causing the climate crisis is urgently needed, as existing climate finance pledges from historic rich emitters remain unmet, and by virtue of overwhelmingly being issued as loans, lock poorer countries into continued economic dependency.
Loss and damage, let alone adaptation and mitigation all cost huge sums of money – total estimates are in the order of magnitude of trillions of US dollars. The breakthrough Loss and Damage commitments made by some historic polluters at this COP represent a drop in the ocean of what will be needed, and willfully sideline the great need for expensive adaptation and mitigation finance. Overall, there is an increasing recognition that financially, a ‘mosaic’ approach is needed to contend with the order of magnitude of missing money, which no overseas development aid (ODA), government bonds or voluntary pledges alone can fill.
We are at a critical juncture – the role of taxation for climate justice, and the climate finance gap especially, is finally being recognised. It is now on us, as both climate and tax justice activists, to push for the most ambitious and equitable fiscal solutions on offer.
Replaying age old North-South dynamics
In a move that came as a surprise to no one, the IMF used COP28 to underscore the importance of carbon taxes to raise the price of carbon globally, raise revenue and accelerate investment in sustainable activities. This is an implicit admission that tax can in fact do a lot for the climate, but it is painfully unambitious and, when being hailed as a flagship climate policy, can have disastrous equity implications for poorer groups and countries.
The related Carbon Border Adjustment Mechanism the EU passed into action this year results in declines in exports in developing countries in favour of developed countries, which tend to have less carbon intensive production processes. Such carbon taxes, pending their specifics, have been called ‘trade weapons’ by climate activists from the global south.
Meanwhile, rich countries also want to prioritise the further development of voluntary carbon markets, rapidly growing in economic value. But these markets remain self-regulated with little transparency, often resulting in the sale of phantom credits, and primarily benefit the brokers who act as middlemen in the purchase and sale of carbon credits, usually based in the global north, with a dubious record on actual carbon reductions. The market failures are such that in recent times, countries like Papua New Guinea and Honduras have been putting a moratorium on the licensing of new offset projects.
Realising the full potential of tax justice for climate justice
Once one starts thinking about tax and climate together, two things become clear. First, when we talk about the increasing awareness that tax should help fill the climate finance funding cap, we mostly mean measures that could, at least in theory, be implemented within current tax systems and frameworks. Policymakers know this, and this COP, remarkably, saw the launch of a new Global Tax taskforce. The taskforce will consider different tax policies to fund future climate action. Its objective is to identify by the time COP30 in 2025 rolls around what levies or taxes should be introduced at the global level to raise revenue. This is very welcome news, as the war in Ukraine and subsequent rise in energy prices has shown most recently, collecting tax at the corporate level from fossil fuel companies – through windfall and excess profit taxes – was relatively low hanging fruit considering the ease of implementation and high returns.
To quote some numbers, the EU Tax Observatory has found that taxing the January 2022 to September 2022 valuation gains of energy firms at a rate of 33 per cent would have generated around €80 billion in revenue. Other options the taskforce will consider are a tax on wealth. At the individual level, a progressive tax on extreme wealth – which has dire climate consequences – on those individuals with assets worth over US$100 million could generate an estimated US$295 billion annually according to the World Inequality Lab. It will further examine sectoral leives, knowing full well that if all 195 state signatories to the Paris Agreement imposed both a shipping and aviation levy, these levies could generate between US$132–392 billion annually. All proposals under discussion come at the ‘end point’ of any given economic activity – once fossil fuels have been extracted, once wealth has been amassed and container ships and budget airlines have reached their destinations.
But when we point out that the amount of tax lost every year to multinational corporations and wealthy individuals using tax havens is in the hundreds of billions, on par with the amount of money needed each year to cover the estimated cost of climate-induced loss and damage, we want to draw attention to the fact that the way the international tax governance system itself has been set up deprives countries of the revenue they are entitled to for public spending, including critical climate budgets. Curbing abusive profit shifting practices that shrink the amount of corporate tax payable, through the implementation of automatic exchange of financial information between countries, implementing beneficial ownership registers and country by country reporting for multinational companies and unitary taxation of income with a global minimum tax rate are all policies to end tax abuse that will fill domestic budgets.
Changing how we change tax rules
It is critical – and absolutely feasible, with some collective will – to use targeted taxes and levies to fill some of the climate finance gap. But beyond these measures, both movements should focus challenging the international tax order itself, which has limited countries’ abilities – particularly lower income countries – to exercise sovereignty over their tax rights. For the past sixty years, global tax policy development has been largely determined by the OECD, which represents only a minority of rich countries – and which has proven ineffective in curbing the significant tax abuses by multinational companies and high net worth individuals – money that is going missing when it could be spent on climate finance, and so much more. But the tide is turning – history was made last month at the UN when countries adopted by a landslide majority a resolution to begin the process of establishing a framework convention on tax and completely change how global tax rules are decided.
Giving all countries around the world a fighting chance to mitigate and deal with climate breakdown starts with adopting global tax rules that both eliminate tax abuse and fairly distribute tax revenues.
Welcome to the 72nd edition of our Arabic podcast/radio show Taxes Simply الجباية ببساطةcontributing to tax justice public debate around the world. It’s produced and presented by Walid Ben Rhouma and is available on most podcast apps. Any radio station is welcome to broadcast it for free and websites are also welcome to share it. You can follow the programme on Facebook, on Twitter and on our website. All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here.
الإستعمار الأخضر والإمبريالية البيئية
في العدد #72 من بودكاست “الجباية ببساطة” نستضيف الباحث والناشط الجزائري د.حمزة حموشان في حوار مع وليد بن رحومة حول عدم تكافئ العلاقات الدولية في علاقة بالمنظومة البيئة والمناخية، مايؤدي الي إستعمار جديد مبني على أساس نهب الثروات. في الحوار شرح لكيفية كسر هذه المعادلة عبر إنتقال عادل لتحقيق العدالة المناخية.
In issue #72 of our Arabic podcast, we host Algerian researcher and activist Dr. Hamza Hamouchane in a dialogue with Walid Benrahouma about the unequal international relations in relation to the environmental and climate system, which leads to a new colonialism based on the plunder of wealth. The dialogue explains how to break this equation through a just transition to achieve climate justice.
Welcome to our Spanish language podcast and radio programme Justicia ImPositiva with Marcelo Justo and Marta Nuñez, free to download and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónico! Escuche por su app de podcast. (All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here.)
En este programa con Marcelo Justo y Marta Nuñez:
La victoria de Javier Milei en Argentina y su repercusión regional y global
¿Habrá alguna vez unidad en América Latina?
Entrevista con la viceministra técnica de Hacienda en Colombia, figura clave del pacto fiscal para América Latina que firmaron 16 países de la región
Cerramos nuestra miniserie sobre los mitos fiscales con el mito 10: la corrupción
Oscar Ugarteche director del Observatorio Económico latinoamericano, OBELA, profesor de la Universidad Nacional Autonoma de Mexico, la UNAM y autor de Historia Critica del FMI
Maria Fernanda Valdez Viceministra técnica del ministerio de hacienda de Colombia y autora de Reducir la desigualdad “El Papel de la política tributaria”
How can environmental taxes increase the sustainability of economic growth in low-income countries?
Environmental taxes can be defined as any tax imposed on a base with a proven negative impact on the environment – examples include import tariffs on plastic material, charges on traffic congestion, or excises on fertiliser. They have been widely promoted as a way to reduce environmental damage while at the same time raising revenue from polluters. Because they are typically calculated on tangible commodities and volumes, they are also often seen as harder to evade than some other taxes that are based on more abstract concepts, making them attractive instruments for low-income countries.
The environmental tax which has been discussed the most is undoubtedly the carbon tax, which is levied on the carbon content of different goods, strongly correlated with the amount of fossil fuels required in their production. Carbon taxes are seen as an essential tool to reduce greenhouse gases, and there is an almost universal support for their introduction across the globe. This includes Sub-Saharan Africa, with the United Nation, the International Monetary Fund, and the OECD all promoting their implementation in various countries in the region at different points in time.
This will require a combination of things, two of which stand out. First, high-income countries should finally meet their pledge to direct USD100 billion per year to climate finance, something they are still falling awfully short of. But they also need to operationalise the loss and damage fund which was agreed to at COP27, whose ground set-up is proving contentious. Both of these will be necessary to meet the current financing need of adaptation, mitigation and renewable energy generation across much of Sub-Saharan Africa. But just as importantly, this is also the only morally justifiable course of action given that the countries bearing the brunt of climate change damage are those which least contributed to it, as only South Africa appears as one of the top-20 historical emitters of greenhouse gases. Second, the revenue currently channelled towards fossil fuel subsidies, which predominantly favour richer household, must be redirected to increasing affordable access to modern energy for low-income households – something which might be renownedly hard, but also achievable.
While carbon taxes might still play a role in the medium term in Sub-Saharan Africa, they do not contribute to addressing either of these obstacles, and African governments should not use the scarce political capital at their disposal for fiscal reform to pursue policies which lack immediate environmental or revenue benefits. This seems to have been implicitly recognised at the recent Africa Climate Summit in Nairobi, where the final declaration calls for a global carbon taxation – augmented by a financial transaction tax – rather than committing to introducing carbon taxes domestically. This is a far more logical approach, and is also why measures such as the carbon border adjustment mechanism recently introduced by the European Union should carefully consider their treatment of least developed countries.
While existing evidence is still scarce due to the novelty of the scheme, early analysis suggests that some low-income countries, such as Mozambique, while suffer significantly from its introduction. Furthermore, it is highly doubtful that this approach will create the particular goodwill across impacted countries required to push through reforms as complex as a carbon tax – it might in fact just do the opposite. If the European Union does not take action to exempt least developed countries, or decides to redirect the revenue collected from this group of countries to where the export originated, the carbon border adjustment mechanism will increase rather than reduce international inequalities.
So, is there nothing that environmental taxes can do?
This does not mean that fiscal policies cannot contribute to addressing developmental and environmental issues across Sub-Saharan Africa, but rather than the issues they can contribute to are not those currently receiving the most attention. For example, tax policies can be used to tackle urban pollution originating from poor waste management and ageing vehicle fleets, as well as being part of the policy mix used to address unsustainable forest management. These are all pressing issues across the continent. Air pollution is one of the major causes of premature death in the continent and it is strongly connected to the prevalence of biomasses in the energy mix of low-income households, in itself a cause of deforestation, while ageing vehicle fleet lead to frequent road fatalities. Similarly, poor waste management is connected to a variety of health issues in urban areas, with the roadside burning of waste, or animals consuming waste, both of which in turn potentially introduce waste back into the food system.
Indeed, recently completed work indicates that these are all areas in which African policymakers themselves think that fiscal policies could help. For example, remodulating import tariffs to disincentivise the acquisition of second hand vehicles could be relatively easy and will not likely be regressive in a region in which car ownership is still seen as a luxury good. This can be combined with vehicle ownership taxes, which remain virtually absent on the continent, whose revenue can be earmarked for the provision of public transport to the many urban poor.
Taxes have also been the main source of funding for waste disposal across high income countries, but remain incredibly scarce across the continent. When present, they tend to be flat-rate charges, which makes them inherently regressive, further exacerbating the impact on lower-income household which are already more likely to suffer the health consequences of poor disposal. A more progressive way to improve waste management would be to link them with the often-progressive rate of property taxation, or with surcharges on water and electricity bills, although low collection rates amongst African power utilities and issues with property tax systems coverage and equity must be kept into account.
Just environmental taxation domestically and internationally
The tax system can and should be used to address environmental issues, but it is important to ensure that this is not done at the expense of its progressivity. Given the high reliance of lower-income households on natural resources, combined with the often-limited capacity of providing direct support of African governments, environmental and revenue considerations should be carefully balanced with socio-economic ones in the policy process. Some of the examples provided above demonstrates that there are various theoretical instances in which fiscal policies can play a role in reducing environmental damages ensuring that wealthier citizens shoulder the appropriate burden. This is for example the case with taxation of privately owned vehicles whose revenue is earmarked for funding public transport, or for waste-management taxes which increase progressively with property values or energy and water consumption.
A similar approach should also be applied in the international arena. High-income countries will do well to remember that they are the cause of the climate crisis, and should not unfairly burden low-income countries with facing its consequences, including by forcing them to adopt policies not fit for their context.
Welcome to our monthly podcast in French, Impôts et Justice Sociale with Idriss Linge of the Tax Justice Network. All our podcasts are unique productions in five different languages every month in English, Spanish, Arabic, French, Portuguese. They’re all available here and on most podcast apps. Here’s our latest episode:
Dans cette 56ème édition de votre podcast en français sur la justice sociale et la justice fiscale, nous revenons sur un rapport publié par Oxfam, sur des données de l’Institut de Stockholm pour l’Environnement et qui aborde sous une approche originale, la question des inégalités climatiques dans le monde. Ce document est sorti en amont de la COP 28 qui se tenait à Dubaï aux Émirats Arabes Unis, et qui elle aussi à eu du mal à trouver un consensus sur la justice climatique. L’étude d’Oxfam évoque le rôle que la justice fiscale pourrait jouer dans ce contexte, et évoque des principes tels que la publication des comptes financiers des multinationales par pays, la transparence sur la propriété pour une responsabilité effective, et une meilleure répartition de l’impôt mondial. Pour en discuter, nous avons reçu la Directrice d’Oxfam en Afrique, qui nous rejoint en tant qu’invitée Fati N’Zi-Hassane : Directrice d’Oxfam en Afrique.
~ 56 Finance Climat: Le Monde ne peut continuer de payer pour les riches!
Vous pouvez suivre le Podcast sur:
Le télécharger pour l’écouter hors connexion sous le sous ce lien
Et pour ceux qui ont l’application Stitcher et iTunes ect
Si vous souhaitez recevoir cette production ou être média partenaires ou simplement contribuer, vous pouvez nous écrire à l’adresse Impô[email protected]
Desmatamentos, exploração ilegal de minérios e de madeira: parte do dinheiro sujo dos crimes ambientais na Amazônia acabam em paraísos fiscais nos Estados Unidos. Quem são os responsáveis? Como parar com isso? Esse é o tema do episódio #55 do É da sua conta.
Alessandra Korap fala sobre os impactos do garimpo e da mineração nos territórios dos mundurukus. Povos indígenas e comunidades tradicionais são as afetadas diretamente pelos crimes ambientais na Amazônia.
A conexão entre crimes ambientais e crime organizado na região amazônica é explicada pelo professor e pesquisador Aiala Colares Couto (UEPA e Instituto Mãe Crioula).
Pelo menos 281 bilhões de doláres de rendimentos anuais para criminosos. Relatório da FACT Coalition aponta os Estados Unidos como um dos paraísos fiscais que mais lava dinheiro advindo dos crimes ambientais. Vivian Calderoni, do Instituto Igarapé, comenta os achados do relatório.
Fluxos Financeiros Ilícitos: como se definem e como combatê-los? Florência Lorenzo, pesquisadora da Tax Justice Network responde.
Participantes:
Aiala Colares Couto, professor e pesquisador da Universidade Estadual do Pará. E presidente do instituto Mãe Crioula.
“A gente não sabe quem é pior: se são os garimpeiros ou as mineradoras”. ~ Alessandra Korap, liderança munduruku
“Me perguntaram uma vez sobre lavar dinheiro (das drogas) com ouro. Mas será que é lavagem? Porque se o ouro já é ilegal e contrabandeado, uma atividade ilegal não lava a outra atividade ilegal.” ~ Aiala Colares Couto, professor e pesquisador da Universidade Estadual do Pará
“Fraudes, corrupção e lavagem de dinheiro: três crimes essenciais para dar a aparência de legalidade. São fraudados documentos sobre esses bens florestais, ocultando as origens ilícitas e possibilitando que sejam comercializados, por exemplo. ~ Vivian Calderoni, Instituto Igarapé
“Precisamos saber quem são as pessoas que estão se beneficiando dessas transações e, portanto, desses crimes ambientais. Para isso, é central que todos os países garantam transparência de empresas ou outras entidades legais sobre quem são os proprietários, proprietários legais, mas também beneficiários finais” ~ Florencia Lorenzo, Tax Justice Network
Welcome to the latest episode of the Tax Justice Network’s monthly podcast, the Taxcast. You can subscribe either by emailing naomi [at] taxjustice.net or find us on your podcast app. All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here.
On the Taxcast this month, the story of what happened when the US tax authorities, the IRS, decided to crack down on Microsoft, one of the world’s biggest tech companies. Worthy of a thriller movie with its twists and turns, there are many lessons for governments worldwide. And it’s not over yet.
The only ones who benefit here are the big four tax advisors, in this case, tax advisors at KPMG. All of that was very lucrative for them. The downside was suffered by everyone else”
Naomi Fowler: Hello and welcome to the Taxcast, the Tax Justice Network Podcast. We’re all about fixing our economies, so they work for all of us. I’m Naomi Fowler. On the Taxcast this month, the story of when the US tax authorities, the IRS, decided to crack down on Microsoft, one of the world’s biggest tech companies.
Zorka Milin: The only ones who benefit here are the big four tax advisors. In this case, tax advisors at KPMG. All of that was very lucrative for them. The downside was suffered by everyone else.
Naomi Fowler: And before that- titanic power clashes seem to be the order of the day. There’s been another historic vote at the United Nations, a landslide vote on how international tax rules are decided. This vote now pushes the world on to the next stage. Here’s Alex Cobham of the Tax Justice Network.
Alex Cobham: Last week’s vote at the United Nations was absolutely historic. The countries of the Global South came together and demanded that after a hundred years in which the imperial powers or their, their successors at the OECD, the rich countries, have set the rules, that there should actually be a process at the UN to negotiate a convention on tax, international tax cooperation in particular, in which every country in the world will have an equal say, the right to participate fully. So it allows us to look forward to a position where we finally have a global tax body in which every country is represented.
Now this is really important for the countries of the Global South, starting with the Africa group who’ve led this. These are the countries that lose the biggest share of their revenues, each year to international tax abuse. And that international tax abuse is primarily caused by and facilitated by the rich countries, the members of the OECD and their dependent territories.
But there’s also a win here for those OECD countries themselves. They’ve insisted for so long on keeping the power at the OECD. And it’s not just exclusionary there, it’s also become completely ineffective, so the OECD members themselves lose, and all of us who are citizens of OECD countries too of course, lose the greatest amount of revenues in absolute terms to that cross border tax abuse by their own multinationals by individuals hiding assets and income streams offshore. So for all of us, the negotiation of the UN convention that will soon begin is an awesome opportunity to hold our governments to account, instead of going behind the closed doors of the OECD. People said we’d never get anywhere at the United Nations, that we just had to deal with the fact the OECD was exclusionary and kind of structurally unjust and get the best that we could out of that. I think we’ve moved on, So let’s celebrate just a little, and then the hard work begins.
Naomi Fowler: Yeah, the last time the Global South countries tried to bring decision making on tax rules to the United Nations was back in the 1970s. Now, 50 years later, they’re mounting this existential challenge to global power. In next month’s episode, we’re going to bring you our analysis of the vote, the attempts by some nations to block it, and we’re going to look at what happens next.
Back to the largest audit in history. It’s kind of a United States taxpayers versus Microsoft. And the story doesn’t begin where you’d expect.
[Anthem of Humacao]
This is the anthem of Humacao. It’s an absolutely beautiful location in Puerto Rico, about an hour’s drive from the capital city of San Juan. It’s got a 3, 000 acre nature reserve, lots of beaches and a population of around 50,000 at the last count, not including all the tourists. It doesn’t have an obvious connection to one of the world’s biggest multinationals, Microsoft. But, since 1989, Microsoft had a little facility there, employing about 85 people to burn Office and Windows software onto CDs.
Microsoft had enjoyed a 15 year tax deal with Puerto Rico on this little factory, which guaranteed them a tax rate of zero to 2%. Over the years, it saved them nearly $200 million in taxes. It’s not a huge deal for such a big corporation, but it’s nice if you can get it. That nice little 15 year deal was due to end in 2005, but a much more lucrative opportunity came up. This is Business Reporter at ProPublica, Paul Kiel.
Paul Kiel: They were actually about to close the factory because there was no point in having it there anymore when essentially KPMG, you know, one of the big four consulting and auditing firms came to them with a proposal and said, you know, Puerto Rico is actually a great, great place to have a factory if, if you have some sort of IP transaction.
Naomi Fowler: IP is intellectual property.
Paul Kiel: The idea of like a company like Microsoft selling it’s IP, its most valuable product, particularly to a small company in Puerto Rico is ludicrous ! And, you know, these types of transactions are not unique to Microsoft by any means
Naomi Fowler: Indeed they’re not. Multinational companies use all sorts of tax strategies to shift their profits to tax havens, and they do it to the tune of an estimated one trillion dollars a year.
In Puerto Rico, 43 percent of the population lives in poverty. Not much benefit to be had for them with the Microsoft deal. Except for a few jobs maybe. Anyway, this story’s been running for a long time.
Paul Kiel: 20 years, it’s, that’s how old it is. It’s a long time. It’s like, a child born, you know, the same year as the transaction was being audited, you know, is maybe in college now!!
Naomi Fowler: Ha ha. Anyway, KPMG’s brilliant idea was for Microsoft to sell its intellectual property to this 85 person factory it owned in Humacao. This time, KPMG persuaded the Puerto Rican government to give Microsoft a tax rate of close to zero percent. Microsoft shifted at least 39 billion in U. S. profits there. The IRS auditors, the IRS auditors discovered what they believed was some mightily creative accounting, some laughable numbers, in fact. Fast forward to 2023, and Microsoft announced the IRS had notified them that they owe 28. 9 billion dollars in back taxes, plus Penalties and interest. Microsoft disputes that.
Paul Kiel: And they’re going to appeal and that’s going to take another good long time.
Naomi Fowler: A very long time. It’s a fascinating story. It should be made into a thriller movie someday. Honestly, the twists and turns, the arrogance of Microsoft, the determination of the attorneys working for the IRS. I mean, wow.
Anyway, tax authorities don’t often challenge multinationals in this way, even in the United States. So how did this even happen?
Paul Kiel: This is a time when the IRS was actually like relatively well funded around 2010. You know, Obama’s president, they have an IRS commissioner who says is going to make this a priority. And so they stand up this new unit that’s going to audit these sorts of transactions more capably. I think it’s fair to say there had been some audits before that point, but they had not been particularly I guess, aggressive in their, in their posture towards how they’re approaching the issue. And you know, clearly back footed, like reacting as opposed to making any sort of stand. And so they, they hired a guy named Sam Maruca, who actually had been a lawyer in private practice. And he was sort of outspoken about the fact that, you know, some of these transactions were, were clearly a kind of, he didn’t use the word tax shelter, but essentially he’s saying that’s what they are. And that, you know, the IRS had gotten into a little bit of a losing streak in auditing these transactions and he thought the reason for that was that they weren’t essentially going about the audits the right way. And he brought over another attorney from a firm he’d practiced at, named Eli Hoory. He was actually pretty young at that time, not that far out of law school, had done some work in the private sector. And, you know, he also bought into that sort of idea. And so they were canvassing when they got there, 2010, 2011 for cases that they thought would be good, sort of like, let’s stand our ground sort of cases.
Naomi Fowler: And so, I mean, they had this new unit. It was in the height of some serious money and political will directed at corporate tax abuse. So do you put all this kind of action, which was quite unusual in several different ways, down to political will? Was it public pressure? What do you think spurred that kind of, setting up the unit, going quite aggressively after one big multinational?
Paul Kiel: Right, as for why this happened back in 2010, yeah, I think it’s, it was seen as you know, having corporations pay their right amount of tax. I mean, these, these profit shifts, shifting like, you know, to Ireland and all these other tax havens, like, you know, that’s not popular, people don’t like that idea. There’s not a lot of defenders of the principle, like, why that’s good policy. There was a lot of corporations on Capitol Hill saying, you know, we, we follow the law as it’s written, sort of thing. But so yeah, you know, I don’t, I don’t know if public pressure is quite the word for it, but I think it was seen as, you know, politically a positive idea. And that was why the IRS had the capital to do that. But I think it also also comes down to the personalities of people who are put in charge of the unit and decided to do things a certain way. Obviously, there wasn’t like, you know, the public was not clamoring for them to use these, you know, highly obscure tools that the IRS has and nobody knows about that, it’s their choice to decide how to carry out the mandate of, you know, having corporations pay their, pay the appropriate amount of tax.
Naomi Fowler: Yeah, I have found before that just a small, quite surprisingly small group of individuals can make a big difference in cases like this and in how tax authorities, uh, take action.
But, I mean, hiring a private corporate law firm to represent the agency, that, I don’t think that had happened before either, right?
Paul Kiel: No, it had never, it was kind of a creative idea they had, which comes back to them being from, in private practice. And basically like, I mean, frankly not, they were not very impressed with the litigators that the government had at their disposal. And basically like, we need, we need winners is kind of the idea and yes there was a big freakout on Capitol Hill about that and essentially they got into legislation that prevented it from happening going forward. I mean, obviously it’s not absolutely necessary for the IRS to have access to private litigators. What is necessary is for them to have capable litigators.
Naomi Fowler: Yeah, it’s fair to say as well that if an agency, a tax collection agency can pay well, then they can retain arguably some of the, the best people but I’ve found many times that you see a lot of people going to the other side, because they can earn a lot more money and they’re deploying those skills not for the public good, but for corporate good, I guess.
Paul Kiel: Right. Government salaries are not what you can earn in the private sector, so essentially you’re always, it’s not like they’re paid poverty wages, like you can get paid quite well by normal standards, but not by like, you know, working for a big four accounting firm standards. So the pitch is always like a public service sort of pitch. Or if you want to be less public service oriented, you know, there is value to have worked at the IRS. You want to go back into the private sector and, you know, maybe get paid a little more because of that experience, so they are trying to staff up. It’s going to take time.
Naomi Fowler: So the reaction of the big tech companies to this challenge from the IRS was really, really strong, and they actually managed to lobby enough to get a change in the law, restricting the ability of the IRS to use some of the same tactics in future. This reaction I mean, in lots of ways, it shows you how these very big corporations will act as one when it’s in their collective interest.
Paul Kiel: Right. Yeah. So, I mean the lobbyists argument on Capitol Hill is never, you know, we want to make sure that our big tech companies can send profits to tax havens, that’s not the way they frame their argument. It’s always, you know, taxpayer rights. You don’t want the IRS basically being unfair in how it audits people.
So you know, this, this unit, that was one of their cases and Microsoft was the big one. And so one of, one of the tools they have is called a designated summons. And essentially what it is is when a taxpayer is not being forthcoming with documents, they have not given them over in the typical process where the IRS asks for documents and they can stall or whatever. And then it’s up to the IRS to sort of take a stand. You know, it’s kind of more conventional to issue a normal summons, which would just be, you sue them in court and say, give me the documents, but the problem with that is the statute of limitations is still running. So you’re going to have the clock running out on you. It gives incentive to the taxpayer to, you know, drag their feet a little bit. Designated summons stops the clock. So that takes away the leverage that the taxpayer has in that situation, because instead of being able to run out the clock, they have to just sort of fight it out in court, however long it takes. And that’s essentially what happened in this case.
Naomi Fowler: There’s an internal appeals process where there’s an independent private check on audit findings. Some call the Office of Appeals the gift shop because complex transfer pricing audits looked at there end up reducing the amount of tax originally owed by about 81%. Microsoft was keen to move straight to that process for obvious reasons. The IRS tried to block that avenue and go straight to an open public court. No doubt they were cheered by frustrated IRS auditors everywhere who faced armies of corporate lawyers in other cases.
Paul Kiel: People who I spoke to are auditors often very frustrated with appeals, essentially giving cases away that took years to build on the appeal side they have, they have this idea of they have to weigh the litigation hazard, which is they’re saying, how, how likely is the IRS to lose in court? And they would come to the conclusion, we’re probably not going to win, maybe there’s a 20 percent chance to win, therefore we’ll mark down you know, the, the adjustment to 20 percent of what the IRS is wanting, like that sort of logic. And so they were particularly worried about doing all this work, building this great case, and then appeals is like, well, it’s a transfer pricing case. We don’t win, so we’ll just give it away. So they, they, they sought to skip appeals, and that was one of the big things they fought over.
Naomi Fowler: Microsoft won that particular boxing round and got its internal appeal. And from now on, new legislation will make it harder for the IRS on that front. That’s because this huge lobby of tech and business groups lobbied hard. And to cut a long story short, a bill was passed into law, meaning the IRS will have to follow a new process if they want to block appeals or designate summons. And when they do, they’ll have to report directly to Congress.
Paul Kiel: You know, lobbyists for the corporate world and for wealthy taxpayers are good at making arguments in a way that emphasize the taxpayer rights aspect of things. So you end up with bills that are like called the Taxpayer Rights Act or that sort of thing, when oftentimes they’re picking issues that really only affect like the largest corporate taxpayers, but oftentimes they’ll try to characterize them as hurting small business. So that’s what you’re up against if you’re supportive of, you know, more muscle behind tax administration.
Naomi Fowler: However, in one of the big victories so far for the IRS in this long running case, a judge agreed with the IRS’s view on Microsoft’s use of Puerto Rico. He wrote in his judgment, quote, ‘the court finds itself unable to escape the conclusion that a significant purpose, if not the sole purpose, of Microsoft’s transactions was to avoid or evade federal income tax,’ close quote. And he agreed with the IRS that documents from accountancy firm KPMG had to be turned over because they’d been promoting a tax shelter. And when you see these documents, you can see why Microsoft fought so hard to keep them confidential.
Paul Kiel: so there’s, there’s privilege similar to this attorney client privilege that, you know, an investigative agency can’t get to or, or a litigant. Same thing with tax advice. But in cases where, you know, a court decides it’s, there’s a tax shelter, those privileges get rolled back. And it’s, and it’s more, and essentially that’s what the, that’s what the IRS successfully argued in this case.
Zorka Milin: We know that these kinds of corporate tax schemes are zero sum. Actually, more than that, you know, this case shows they are a negative sum game, in which nobody really wins.
Naomi Fowler: This is Zorka Millin of the Financial Accountability and Corporate Transparency Coalition.
Zorka Milin: So in this case, you know, take the people of Puerto Rico, where Microsoft barely paid any taxes, and they didn’t even create a meaningful number of jobs. And Puerto Rico, you know, that it’s one of the poorest parts of the U. S., and it’s also increasingly hit by you know, climate impacts like the, like the tragic Hurricane Maria a few years ago. So, you know, in Puerto Rico disaster relief and other basic public services are desperately needed.
And let’s not forget the U.S. Treasury. I mean, you know, the U.S. obviously suffered a gigantic, maybe even record breaking revenue loss which they’re now trying to, to recover from Microsoft. And also, think about Microsoft’s investors, they stand to lose, certainly if the IRS is successful, that would be a huge hit to the company’s bottom line, even for a company that’s, you know, as huge as Microsoft.
And so really the only ones who benefit here are the big four tax advisors. In this case, that would be the Microsoft tax advisors at KPMG who came up with this plan and managed to convince Microsoft’s executives to go along with it. And they also negotiated the controversial tax holiday with Puerto Rico. All of that was very lucrative for them. There was no downside. You know, the downside was suffered by everyone else.
Naomi Fowler: Indeed. Like tax authorities in many nations, the IRS was financially undermined for years. Soon after coming into office, President Biden injected huge amounts of money, and with the Inflation Reduction Act, the IRA, more investment was promised.
Samantha Jacoby: The funding is very important for the effort to overall for the effort to rebuild the IRS after over a decade of a budget cuts.
Naomi Fowler: This is Samantha Jacoby of the Centre on Budget and Policy Priorities.
Samantha Jacoby: The IRS budget, it’s sort of annual budget that that it gets every year is, is about 20 percent below what it was in 2010 after you adjust for inflation. So there was a, it’s sort of a deep hole that the IRS was in before the inflation reduction act passed and and kind of the, the whole idea behind it was, was to to get the, the IRS back to where it would have been without those cuts.
Naomi Fowler: the Biden administration was estimating that this new IRS investment should raise 400 billion over the next 10 years. you know if you look at what, what the IRS can do when it’s very, very determined and you’ve got a lot of political will and I’m just thinking about the Microsoft case at the moment and I know that they’re appealing but it just shows that with the right amount of funding that comes from very strong political will and belief in the tax authority as a public good, it can achieve a lot of things for the public, right?
Samantha Jacoby: Yeah, so it is it is it is clear that with with adequate funding that the, the IRS can can take on some of these large high impact cases and bring in a lot of revenue and you mentioned the Treasury estimate on raising 400 billion dollars in revenue but there’s there are some academics out there who think that that would be even higher. That return on investment would be even higher. There’s a study that found that for every dollar, the IRS spends on auditing very high income taxpayers, the, the government, the government gets back 12 dollars in revenue.
So that’s, that’s a huge return on investment. Whereas audits of low middle class households raise far less. And, you know, the, the, without that, that those resources, it’s, it’s clear that the IRS just doesn’t have the capacity to take on those kinds of cases.
The audit rates for millionaires and the largest corporations over the last 10 years fell by roughly 77 percent and 56 percent respectively from 2010 to 2017. The reason that that happens is tax returns of high income and high wealth people and large businesses are just they’re so complex auditing them is is labor and time intensive. And so without resources, without the sophisticated audit staff, the IRS just can’t do it. They’re, they’re, they’re just not equipped to, to sort of even identify those, those high impact cases, let alone pursue them and take on the, the, the, the corporations sophisticated tax advisors in court. But even, you know, even just a year into the inflation reduction act funding taking effect the IRS has already shown what it can do.
The Microsoft case of course, predated the the the IRA, but the, the IRS has has has has been very effective so far in using the new funding, both to improve the services that it provides taxpayers as well as, you know, it’s technology improvements and and even making investments in enforcement. So in terms of customer service, they, they made huge improvements over the last filing season in terms of improving the level of service that they’ve they’ve provided to taxpayers that people have been you know, getting their calls answered more, more quickly, they’ve the IRS has, has opened new taxpayer service centers to help people file their returns, they’ve made big improvements in digitizing the tax the tax return filing process on the enforcement side they’ve, they’ve announced a big new initiative to audit partnerships. Partnerships particularly large partnerships are really, really difficult to audit. And the IRS has historically almost never audited large partnerships. The audit rate was practically zero but they’ve announced that they’re going to start using AI tools to identify partnerships for audit. And, and those, those types of entities include hedge funds, large real estate firms that, that are really, they’re, they’re really sophisticated entities that are able to sort of structure their, their businesses so that it’s, it’s really difficult to unpack where their income is. And so that’s one area we’re seeing improving already just a year in. There there’s been efforts to pursue high income people who have not filed their taxes or failed to pay their their, their tax debts. Those efforts are already starting to pay returns as well.
Naomi Fowler: You’d think that’s something all politicians could get behind, but sadly that’s not the case. The Republicans are proposing to cut the vast majority of what remains of the 80 billion Inflation Reduction Act funding. Paul Kiel again.
Paul Kiel: I mean, it was pretty apparent to me from the beginning that that money would be under threat politically for the entirety of its life. And that’s, you know, what we’re seeing now. I mean, the Republicans have tried, it’s like a routine now, like every single bill they try to take away money from the IRS and you know, if we end up with an election where you have completely Republican controlled government, I think you have to expect them either gutting that pot of money or simply saying like the IRS gets no money in a normal, like it’s there are normal annual appropriations that are going out, they could just say, like, you just use that pot of money to do that, we’re not going to give any more. And that’ll be a threat for the, for the length of this, of this bill. So it’s, it’s unfortunately, the idea was to give the IRS this pot of money that couldn’t be touched and so that they could hire people with confidence. But it’s, it’s, given the political environment, it’s kind of impossible to entirely accomplish that so, it’s something that’s going to unfortunately have to be watched going forward.
Naomi Fowler: Samantha Jacoby.
Samantha Jacoby: It is very disappointing to see efforts to rescind that funding. for context, the IRS budget in 2023 was about 12 billion. So just that, that annual IRS budget would be cut by a significant amount. And then they would also rescind the vast majority of the long term. 80Billion dollars in funding that that Congress passed last year in the inflation reduction act.
So if that if those funding cuts were enacted that that would prevent the IRS from undertaking its planned rebuilding effort just sort of full stop it, it would cement in place the, the current depleted state of the IRS after a decade of cuts and the result would be continued dysfunction, understaffing, declines in the number of audits of the wealthy and corporations on top of what we’ve already seen.
it hasn’t been passed yet. And, and, you know, President Biden would of course have to approve it. So there, we’re still very optimistic that that, that IRS will retain most of its funding.
Naomi Fowler: Oh, I hope so. I mean, can he veto it then as President?
Samantha Jacoby: Yeah so the President can, has a veto, has veto power over it. And the Senate Democrats are in control and they’ve been supportive of IRS funding as well. But, yeah, but it’s unclear where we’ll end up, but there’s good reason to think that that the vast majority of the funding will stay in place.
Naomi Fowler: Let’s hope so. Meanwhile, pressure’s building on multinationals themselves from shareholders and investors who want to see much more transparency on tax. Zorka Milin again.
Zorka Milin: In the last couple of years, we’ve seen increasing demand for tax transparency in particular coming from investors, in a number of major companies, and that includes big oil companies. Exxon, Chevron, ConocoPhillips, in all of those companies, Oxfam America has filed shareholder resolutions, and it also includes big tech companies.
Notably, let me single out Microsoft itself, so at Microsoft, the shareholder resolution for country by country reporting will be put to a vote again at their upcoming AGM, which is taking place next month. When this happened last year at the AGM, this tax proposal was interesting, it actually had the greatest support out of any shareholder proposal that was put up for a vote last year.
And so, you know, it’s clear we’re seeing an upward trend. Here and at this point, I would say, really, it’s just a question of when and not if, and it’s also, you know, a question of whether it will come as a result of shareholder resolutions or maybe, eventually, we expect to see a more broadly applicable regulation that would come from the U. S. financial regulators, so the Securities and Exchange Commission.
Naomi Fowler: And like so many of these messes we report on on the Taxcast, things don’t have to be this way.
Zorka Milin: Okay, just imagine a world in which Microsoft had published all of its country by country tax information for all of the relevant years here. You know, maybe they did it voluntarily as, you know, some other companies have actually already been doing for many years, or maybe they did it because of a shareholder resolution that was successful, or maybe they were just following the law, you know, complying with a regulation that required all companies to provide this tax information. So if, whatever the reason, if that information was made public, then Microsoft’s investors would have spotted right away the incredibly striking mismatch that exists between Microsoft’s, you know, pretty insignificant operations in Puerto Rico versus the many billions of dollars in tax profits that the company had booked in Puerto Rico. And that would be a major red flag. And I think that would most likely deter a company like Microsoft from engaging in such very aggressive tax dodging. So in that sense, what I would say you know, tax transparency is like sunshine, as they say, it’s the best disinfectant.
Naomi Fowler: Currently, the situation is that under OECD rules, companies report the nature of some of the actual business they do country by country, But, that system’s really deficient in its current form, as Zorka Milin explains.
Zorka Milin: The OECD regime for country by country reporting, it is somewhat helpful. At least it’s helpful to those tax officials from those governments who can access it. And it’s important to note here that that doesn’t include most global South countries. So, you know, for them, it’s not really helpful at all.
Naomi Fowler: And many poorer nations need it the most because corporate tax is even more important to their tax base than in wealthy countries. And there’s another fundamental problem.
Zorka Milin: The larger point I would make here is that the OECD, it’s not really a transparency regime, I think that’s a misnomer because it’s not public. So, you know, I, I don’t think we can call something that’s not public, I don’t think that’s, that’s real transparency. And so it also means that this is of no use to investors. But, you know, while we’re waiting for regulatory action in the U. S. and maybe also the U. K., we actually already have some good news coming from Australia, we recently received a confirmation from a senior Australian government official from the Australian Treasury, Andrew Leigh:
Naomi Fowler: And here he is. Listen carefully, he’s talking about public country by country reporting. Very different.
Andrew Leigh: Australia is committed to public country by country reporting to hold large multinationals to account when it comes to their tax affairs. Country by country reporting is intended to shift behaviour in the way large multinationals disclose their tax information. It puts the onus on multinationals to be upfront about where they pay tax.
Australia plans to start our public country by country reporting regime on the 1st of July, 2024, aligning with the start date for the European Union’s regime. Our aim is to be world leading in country by country reporting, and we’ve consulted on it earlier this year. There’s broad stakeholder interest, and we’re considering feedback on compliance costs and alignment with other international standards.
We want Australia’s transparency commitments to be measured and targeted. It’s about encouraging a race to the top in business productivity, not a race to the bottom in tax compliance.
Naomi Fowler: This should be good news. We’re cautious because the Australian government was on the point of passing this legislation in its parliament earlier this year with a comfortable majority, but it faced a tidal wave of opposition and lobbying and they delayed it. The OECD, along with many others, lobbied strongly to stop this legislation that would have delivered the biggest breakthrough ever. Ever on the taxes of multinational corporations. That proposed Australian legislation would have affected at least one in five of them around the world and they’d have had to start publicly disclosing their profits and taxes. Zorka Milin again:.
Zorka Milin: Australia plans to start its public, so true transparency, public country or country reporting next year, 2024, and that day, that’s going to be a sea change in corporate tax transparency, and it will have major global impact that goes far beyond just Australia because the scope of the laws is such that it will cover many major multinationals and we also hope that it will cover all of their global operations. So that will be a major moment next year.
Naomi Fowler: It would make such a difference. So let’s hope Australia is now back on track with its commitment to public country by country reporting. I had one last question for journalist Paul Kiel of ProPublica who stuck with the Microsoft story for so long.
In my job where I’m trying to communicate these kind of long term battles that are going on, trying to explain to people some of the things that go on behind closed doors, some things which seem quite boring in some ways, and are not easy to explain or understand. I was just wondering what your take on it was, because you’ve been following this case and cases like this for a long time, such a long historical curve in a case like this. Just wondering about your thoughts on the capacity of media and journalists to reflect to people this type of very important case.
Paul Kiel: Right, right. I mean, it’s, it’s complex and not complex. It’s not complex in the sense that it’s apparent Microsoft did a somewhat ridiculous transaction just to save a lot of taxes. So people can people can get that. I mean, I made an effort, I mean, I was writing my story. I did this big story back in 2020 and that was for a general audience and well, first of all, I think the secrecy around tax administration is one thing that is sort of a hindrance like, it’s just really hard to write about this in a way that’s engaging at all because there’s so little public detail. And the only thing that made it possible for me to write that story was this fight that they had in court of these, of the summon and not only does that make a lot of stuff public that wouldn’t otherwise be public, but also the IRS and the Department of Justice are making arguments to a district court judge who is not a tax judge. And so they’re writing in a way that is geared towards a, you know, a smart lay person as opposed to a tax judge, like if you read pleadings in tax court, I mean, I’ve covered this stuff for a while now, I’m not a tax lawyer. It takes a while to get through, like, what are they even saying here? Right? Cause they’re just throwing statutes around and things like that. So it was only because this kind of rare case spilled into public view that I was able to write, you know, a story that people could follow.
A lot of times it just happens, you see the result. The only reason you see the result is if it’s a public company and they’ll just say like what had happened, but they’re allowed to keep those details quite secret. And that aspect has never really made a lot of sense to me is the public companies that are divulging all sorts of details to investors, but their taxes, they have a lot of leeway and their taxes are secret essentially, their tax return is like sanctified, you can’t know that, but here’s, here’s hundreds of pages of financials about this company. It’s like sort of ridiculous. So I think that is actually another aspect of it is there’s so few stories to tell because everything is secret. So, I mean, the idea is broadly popular of corporations paying more in tax, the rich paying more in tax, but the details are obscure to the point where it’s hard to sort of engage the public on it, I think is one big aspect of it.
Microsoft, it’s a big, complicated case. It’s going to be an appeal, it’s going to be private, it’s going to be outside of the public eye and then if they, if they don’t get, if Microsoft does not get the answer they want in appeals, then they will go to tax court, which is public. And that itself will take more time.
So so, you know, there’s always more to be done and you just have to fund the agency and have them hire capable people. You know, good things can happen.
The Financial Action Task Force (FATF) in charge of the Recommendations on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) has opened a consultation on the Guidance to Recommendation 25 on beneficial ownership transparency for legal arrangements (eg trusts). The Tax Justice Network has previously sent written submissions on the reform of Recommendation 25 and published a report showing the widespread use of trust registration around the world. Now, the FATF is inviting feedback on their proposed Guidance to Recommendation 25.
Our response addresses mostly the following questions (summary answers in bold, developed further in our response below):
ii. Are there other potential scenarios concerning beneficiaries that should be included in this Guidance?
Indirect beneficiaries (see more details in section 3.2.1 below).
iv. Are there other additional mechanisms available to ensure access to beneficial ownership information in the context of trusts?
Public access (see more details in section 4 below).
v. What are the suggested approaches to identify, assess, and mitigate the ML/TF risks linked with different types of legal arrangements (trusts governed under domestic law, foreign trusts administered in the country, and foreign trusts having sufficient links with the country)? What trends can be identified?
Demand registration as a precondition for trusts’ legal validity following the examples of Barbados (for purpose trusts), Czechia, France, Puerto Rico or St. Kitts (see more details in section 2 below).
vii. How can countries achieve the obligations on non-professional trustees more effectively?
Apply “constitutive effect registration”, suggesting that the trustee (as registered legal owner of the assets) will be the absolute owner and could defraud the settlor and beneficiaries, unless the trust and all details have been registered (see more details in section 2 of our response).
In conclusion, this Guidance is more comprehensive and ambitious than the actual text of Recommendation 25 which regrettably failed to implement a registry approach for trusts[1] (by requiring trusts to register their beneficial owners with a government authority). There are positive aspects mentioned by the Guidance that the Tax Justice Network has been warning[2] about for years, especially the risks of trusts’ asset protection, flexibility and lack of registration, or cases of trusts “declarative” registration (where lack of registration doesn’t affect the trust’s legal validity). The best solution in this regard is to consider as a “best practice” that trust registration should have a “constitutive effect” (where rights and legal validity start only after registration). Many countries already require registration for the trust’s validity, including Barbados (for purpose trusts), Czechia, France, Puerto Rico or St. Kitts (see the legal sources here[3]).
As for needed improvements, the Guidance should reinforce Section 5.2 on the registry approach by including as “best practice” the findings[4] that more than 120 countries already have some type of trust registration, including 65 jurisdictions which require some trusts to register their beneficial owners. More importantly, the Guidance fails to mention public access, even though some countries already offer free online public access to trusts’ beneficial owners. The Guidance should also review its language for possibly unintended meanings, as it currently appears to condone or even promote tax abuse (“tax minimisation, estate planning”) or fraud relating to creditors (“asset protection”). The Guidance should also clarify that private foundations are always legal persons subject to Recommendation 24 (and thus must follow the registry approach), even if the beneficial ownership definition that applies to these foundations resembles that of trusts, so that all parties to the foundation are registered. Finally, the Guidance should adopt as “best practices” more effective measures against discretionary trusts, expand beneficiaries to cover indirect distributions, and finally discourage complex structures by requiring that beneficial ownership rules should not apply thresholds whenever a party to the trust is a legal person.
The Tax Justice Network’s response
1. Trust registration: describe number of countries with trust registration
The Guidance Section 5.2 refers to the option of implementing the registry approach (ie trust registration with a government authority). It is relevant to include in this section, as a “best practice” the findings of the Tax Justice Network’s report[5] on trust registration: more than 120 jurisdictions already require some trusts to register with a government authority, 65 of which also require beneficial ownership information to be disclosed. In addition, while the Guidance refers to the obligation of the trustee to report information (paragraph 125), countries like Argentina have imposed that obligation on all parties to the trust.[6]
We welcome that the Guidance acknowledges that the lack of registration has many negative effects, such as not knowing how many trusts exist or determining their beneficial owners. Countries are therefore able to export their secrecy, by allowing trusts to be created according to their laws, but having no information about these trusts. Another major risk that the Guidance should include, is the risk to falsify or backdate documents, eg the trust deed or distributions, as these don’t need to be registered (as described by Australia’s tax authority[7]).
In relation to foreign law trusts with a link to a country (paragraphs 71-74), the Guidance could mention as a “best practice” that countries could expand registration triggers beyond having a local trustee. The Guidance could mention as a “best practice” the example of the EU, which requires registration when a trust acquires real estate or establishes business relations, although this should be expanded to cases where a trust has any interest in an entity or asset in the country. Another relevant example is Argentina[8], which requires trusts to be registered whenever any of its parties (not just the trustee) are located in Argentina.
The Guidance should describe as “best practice” all the countries that already have trust registration. Based on the Tax Justice Network’s Roadmap to Effective Beneficial Ownership Transparency (REBOT)[9], the Guidance should encourage countries as “best practice” to register trusts whenever they are created according to local laws, or when foreign trusts have assets, operations or parties located in the country in question.
2. Effect of registration: require constitutive effect where registration is a pre-condition for the trust’s legal validity
To make registration truly effective, especially in relation to local trusts that have foreign assets and parties, the Tax Justice Network has been advocating for a “constitutive effect”[10] for registration (where rights exist only after registration, while unregistered documents are legally worthless). The Guidance should propose as “best practice” to establish trust registration as a pre-condition for trust validity. Many countries already require registration for the trust’s validity, including Barbados (for purpose trusts), Czechia, France, Puerto Rico or St. Kitts (see the legal sources here[11]).
This way the country providing the source of law would be able to identify all its local trusts, even if all parties and assets are held abroad. In fact, many countries[12] already require all of their local trusts to be registered.
We welcome the Guidance recognising that enforcement may be impossible unless registration is a pre-condition for the trust’s validity:
“In the absence of registration requirements for express trusts and similar legal arrangements governed under a country’s law and where failure to comply with such registration requirements would lead to the failure of the trust, a country may find it difficult to establish the extent to which there is foreign use of trusts governed under its law.” (paragraph 78).
A “constitutive effect” approach would also incentivise accuracy and updating of information (addressed by the Guidance’s section 4.3 and 4.4). The effect would be that beneficiaries wouldn’t be entitled to receive a distribution, unless they are pre-registered. Likewise, an unregistered protector or trustee would be unable to make decisions, or veto measures.
This “constitutive effect” would also work to incentivise registration of non-professional trustees. The “constitutive effect” not only encourages trustees or protectors to register for them to be able to make valid decisions (such as investing in securities or purchasing assets on behalf of the trust.) It does more than that: settlors (the original owners of the assets settled into the trust) will also have the incentive to ensure that the trustee registers as “trustee” (disclosing their status as trustee, meaning as a mere “legal owner” of the trust assets).
When the trustee registers “as trustee”, the constitutive effect will have the effect of allowing the trustee to administer the trust’s assets, but also to prevent the trustee from stealing the assets (eg by disposing of them for their own benefit, against the settlor’s wishes). This protection would take place if the trustee disclosed: “I’m John Smith, I’m the trustee of trust X. I’m the legal owner of this house but as trustee of trust X. In reality this house belongs to the trust”. By contrast, if the settlor doesn’t demand that the trustee registers as “trustee”, and instead the trustee is registered as the owner of the assets without any reference to a trust (eg “I’m John Smith, the owner of this house”), then the constitutive effect would result in the law regarding the trustee as the real and absolute owner of the assets settled into the trust – allowing the trustee to keep the assets for themselves, and thus defrauding the settlor and beneficiaries. In this example, the trust deed, being unregistered, would have no legal validity. In conclusion, the constitutive effect encourages all parties to tell the truth to obtain protection of the law. The Guidance should mention as “best practice” that countries could establish “constitutive effect” for the registration of trusts.
3.1 Trust parties to be registered
3.1 Settlors
We welcome that the Guidance (paragraph 25) distinguishes between the legal settlor (a nominee) who appears on the trust deed and the economic settlor (the real but hidden settlor). As ways to identify the economic settlor the Guidance should propose as “best practice” the following. First, whenever authorities become aware of a settlor being just a nominee (legal settlor), they should ask them to reveal the identity of the real economic settlor. Second, authorities should use information on any identified nominee settlor to look for other trusts that this person may be associated with. This could reveal all other trusts where a nominee is potentially being used to hide the real settlor. Third, to detect legal settlors (nominees), the Guidance should require authorities/obliged entities to always obtain information on the transfer of assets to the trust, such as the originating account holder who transferred money to the trust, or details of the previous registered owner of any real estate settled into the trust.
3.2 Beneficiaries
3.2.1 Indirect beneficiaries
Indirect beneficiaries involve schemes where persons can avoid being identified as beneficiaries of a trust but still receive distributions, by masking these distributions as trust expenses (eg paying a person’s credit card or tuition fees as if they were real trust expenses). The Guidance fails to include the requirement to identify “indirect beneficiaries” as beneficial owners, meaning those persons who received disguised indirect distributions. The Guidance could directly refer as “best practice” to the 2022 amendments[13] to the Common Reporting Standard (CRS) on automatic exchange of information, which incorporated indirect beneficiaries:
“Indirect distributions by a trust may arise when the trust makes payments to a third party for the benefit of another person. For example, instances where a trust pays the tuition fees or repays a loan taken up by another person are to be considered indirect distributions by the trust. Indirect distributions also include cases where the trust grants a loan free of interest or at an interest rate lower than the market interest rate or at other non-arm’s length conditions. In addition, the write-off of a loan granted by a trust to its beneficiary constitutes an indirect distribution in the year the loan is written-off. In all of the above cases the Reportable Person will be person that is the beneficiary of the trust receiving the indirect distribution” (p. 94)
The Guidance could include as “best practice” that indirect beneficiaries should also include any individual with a right to, or who actively uses or enjoys, the trust assets, such as a house, yacht or private jet that is settled into the trust.
3.2.2 Discretionary beneficiaries (“Object of power”)
The Guidance effectively rewards complexity by allowing beneficiaries of discretionary trusts not to be registered or identified until the time when they receive a distribution (paragraphs 46, 90). This benefit can be exploited to prevent any registration, given that it may be impossible to find out that a distribution has taken place, especially if it refers to an indirect distribution (see above). It would make more sense to mitigate the risks associated with the complexity of discretionary trusts by requiring as “best practice” that all potential beneficiaries to be pre-identified and registered, both as a way to hold information on all potential beneficiaries and to discourage discretionary trusts altogether.
By discouraging, or directly prohibiting the existence of discretionary trusts, trusts would be treated similar to companies. Companies allow shareholders, directors and other parties to change, but these changes must be registered. As “best practice”, the same should apply to trusts to ensure authorities will always hold information on trusts’ beneficiaries. To enforce this, as proposed above, registration should be considered to have constitutive effect (meaning that rights, eg to receive a distribution) only exist upon registration. As “best practice”, any distribution to an unregistered beneficiary would be considered as a breach of the trust, somewhat equivalent to a company paying dividends to individuals who aren’t shareholders.
By the same token, another best practice is that letters of wishes or any other trust documents with instructions for the trustee should be considered as having no legal validity (and therefore being unenforceable) unless they have been registered with authorities.
3.2.3 Complex structures: legal persons as parties to a trust result in increased secrecy
The Guidance refers to cases where a legal person acts as a party to the trust, eg a corporate trustee or beneficiary (eg paragraphs 23, 89). In such cases, the Guidance (paragraph 84) merely suggests applying the corresponding beneficial ownership rules that apply to legal persons.
As described in our paper on complex ownership structures[14], while beneficial ownership rules for trusts don’t apply thresholds, by adding an entity as a party to the trust and applying the corresponding rules for legal persons, thresholds can de facto be applied in trusts. As we had warned (and as illustrated in the next figure), this could allow the real parties to a trust (or a similar structure, like a private-interest foundation) to avoid registration.
Figure. De facto application of thresholds to trusts’ beneficial owners
This is precisely what happened in an investigation on Russian oligarchs, as described by the BBC[15]:
“The ownership of Biniatta could be structured using a Seychelles foundation with five nominee councillors ‘so as to not declare a controlling person’. This would give the appearance that no one person had control over 25% of the company, the threshold under UK law for the requirement to name a person of significant control. Biniatta followed the advice and no person of significant control was declared.”
For this reason, in case a party to the trust is a legal person, the Guidance should mention as “best practice” that beneficial owners of that legal person should be identified without applying thresholds (anyone with at least one share, voting right or right to dividends should be identified as a beneficial owner of the corporate-trust-party).
3.2.4 Same beneficial ownership definition for foundations.
We welcome that the Guidance refers to the similarities between foundations and trusts (paragraph 21). However, the Guidance should also clarify that private foundations are always legal persons subject to Recommendation 24 (and thus must follow the registry approach), even if the beneficial ownership definition that applies to these foundations resembles that of trusts, so that all parties to the foundation are registered. The Guidance should mention as “best practice” the EU anti-money laundering Directive which establishes precisely this: legal persons (including foundations) are subject to beneficial ownership registration, but the beneficial ownership definition of trusts applies to foundations..
4. Access to information
The Guidance’s section on access to information (Section 5.5) refers only to access by competent authorities and by obliged entities (eg financial institutions). However, the Guidance should mention as “best practice”, or at least as an option, that there is widespread legal practice going beyond this level of access. Many countries allow direct public access to full beneficial ownership (Denmark or Ecuador), access to the parties to the trust when the trust is involved in real estate (eg Panama) or to some trust information (eg Singapore)[16]. Another option the Guidance should mention is to enable public access based on legitimate interest (eg the EU anti-money laundering directive of 2018, known as AMLD 5).
Figure. Denmark’s public registry
Figure. Ecuador’s public registry
It is not clear why the Guidance fails to mention those cases. It should include these other examples of public access alongside the current reference to more restricted access.
5. Acknowledgement of trusts’ risks
5.1 The privacy nature of trusts (ie their secrecy) makes them vulnerable to misuse.
We welcome the fact that the Guidance describes that the secrecy surrounding trusts makes them vulnerable to misuse (paragraph 52).
5.2 Trusts’ flexibility and asset protection are abused in many money laundering cases.
We welcome the fact that the Guidance acknowledges (paragraphs 57-58) that trusts’ flexibility and asset protection can be abused for money laundering and other cases. The Guidance explicitly mentions the ability to shield assets from creditors (what we call the “ownerless limbo”[17]), the possibility to change names of beneficiaries, or for the settlor to retain control. However, the Guidance should also mention the worst risks of all: the possibility of the trustee to have “discretion”. After all, all legal vehicles allow changes. The shareholders and directors of a company can also change over time. The main difference is that in a discretionary trust the change can happen based purely at the trustee’s discretion without anyone being alerted (without even needing to amend the trust deed).
For this reason, the Guidance could propose as “best practice” that discretionary trusts should be outlawed (see section 3.2.2 above). Changes should only become enforceable and legally valid only upon registering the new beneficiaries or trustees with government authorities.
5.3 Abusive trust regimes
We welcome that the Guidance (paragraphs 61-62) also describes other abusive features that we have written about in our review of some of the most abusive trust jurisdictions[18]. For instance, the limitation of the time to initiate anti-fraud actions, the application of criminal burden of proof (“beyond reasonable doubt”), as well as the non-recognition of foreign laws and judgements. In addition to warning about these features, the Guidance could propose as “best practice” that these jurisdictions offering abusive legal frameworks should be considered high-risk by countries (eg add them to the national tax haven list). Alternatively, countries could disregard or invalidate any trust created according to the laws of these jurisdictions.
6. Understatement of trusts’ abusive purposes
The terminology used in the Guidance (eg page 3 and Annex) often appears to resemble that of enablers rather than an international organisation fighting anti-money laundering, especially the euphemisms for tax abuse practices (some of which would constitute a predicate offense for money laundering). The most acute cases of these are discussed below.
6.1 Describing trusts as a mere “relationship” (as opposed to an “entity”) supports trusts’ secrecy
The Guidance reads “[i]t is important to bear in mind that trusts are not a type of legal entity or corporate vehicle but a relationship between the principal parties to such arrangement.” (p. 3). However, unlike the relationships between parents and children, or parties to a commercial contract, eg to paint a house, this “trust relationship” has effects identical to a legal entity – which the Guidance acknowledges. Trusts are usually assigned a tax identification number for the trust (like any company) to pay taxes, and trusts (as an entity) can open bank accounts. Very importantly from a justice perspective, the assets held in the trust are separate from the parties to the trust (settlor, trustee, beneficiary) and in principle cannot be reached by their creditors, even if they are held under the trustee’s name. This is similar to a company benefiting from separation of assets and the shareholder benefitting from limited liability. Even an EU Court of Justice ruling in 2017 described that trusts are in essence an “entity”.[19]
For this reason, the Guidance should warn that although trusts are often viewed as relationships or legal arrangements (as opposed to legal persons), the legal effects of their creation (eg separation of assets, and their complex control and benefit structures) can be similar to, or even riskier than those of, legal persons.
6.2 “Asset protection”, “tax planning and optimisation”, “estate planning”
The Guidance describes as “purposes” for trusts (page 4 and Annex) a mix of legitimate and illegitimate goals. It could be true that most trusts engage in legal and legitimate endeavours, although the lack of registration prevents us from knowing how many trusts exist in the world and to assess their legitimacy. Trusts have been abused[20] many times to engage in tax evasion[21] and avoidance as well as to defraud creditors[22] or circumvent sanctions[23] and prevent asset recovery (using the “asset protection” features of trusts). However, the Guidance uses terminology used by professional enablers[24], such as “tax planning, estate planning”, that have served as euphemisms for tax abuses and fraud. “Asset protection” is defended by the Guidance as a way to protect assets against outsiders, although many times it is abused to defraud creditors (including former spouses in divorce proceedings) because trusts’ asset protection can shield assets beyond the protection of private property or even beyond the protection of limited liability that applies to most legal persons.
For this reason, instead of referring to “tax and estate planning” or “asset protection”, the Guidance should refer to, or at least also mention, the risks of tax evasion, tax avoidance and fraud against legitimate creditors.
6.3 Charitable trusts
We welcome the Guidance’s Box 2.1 on charitable trusts that warns that,
“while pursuing public good objectives sets charitable trusts (and similar legal arrangements such as Waqf) apart from other types of trusts, it is not possible to conclude in absolute terms that they present a lower risk. Indeed, some of their features may create an enhanced risk of misuse for ML/TF.”
We believe that this is the right approach, rather than to follow positions mentioned in the public call of November 27 which suggested that charitable trusts present less risks or that there should be different registration requirements based on the types of trusts. We welcome the Guidance’s warning that charitable trusts can also be abused and should not be subject to any less transparency requirements.
To support this box, there are two warnings that the Guidance could add. For instance, the largest tax evasion case against an individual in the US involved the tax evader renaming his trusts as “charitable” to confuse authorities on the real purpose of those trusts[25]. In other cases, charitable trusts or foundations may include many legitimate beneficiaries (eg the Red Cross or Unicef) to prove that they are “charitable” although no distribution in favour of these legitimate beneficiaries actually takes place, as happened in the case of Northern Rock bank’s trust in favour of Down Syndrome North East[26]. Instead, the capital is concentrated in the trust, undistributed, or de facto distributions are made in form of indirect distributions or salaries.
[19] ECJ 646-15, where the ruling described: “That concept of ‘other legal persons’ extends to an entity which, under national law, possesses rights and obligations that enable it to act in its own right within the legal order concerned, notwithstanding the absence of a particular legal form, and which is profit-making. In this case… under the national law concerned, the assets placed in trust form a separate fund of property, distinct from the property of the trustees, and that the trustees have the right and the obligation to manage those assets and to dispose of them in accordance with the conditions laid down in the trust instrument and in national law. (…) That being the case, such a trust should be considered to be an entity which, under national law, possesses rights and obligations that enable it to act as such within the legal order concerned.”
Today sees the vote by countries of the world on a resolution to move ahead towards a UN tax convention. Amongst the global media coverage, one article stood out. More or less all coverage reflects on the continuing opposition of some major OECD countries including the EU, UK and US, and focuses on the potential for a majority vote if the resolution is broadly supported by G77 members. The Guardian article instead claims that the resolution “is expected to fall at the last hurdle in a vote in New York on Wednesday”, because, it says, it “would need widespread agreement, including by the US and rich nations in Europe.”
This is not factually the case. A majority vote for the resolution could be delivered from G77 members alone, regardless of the stance of OECD members. However, it is true that OECD members have been successful in past cases (eg on debt negotiations) in preventing any movement simply by boycotting a process agreed by majority rather than by consensus. And it is notable that last year’s resolution on “Promotion of Inclusive and Effective Tax Cooperation at the United Nations” (A/RES/77/244) passed by consensus, with all countries agreeing not to require a vote.
But the precedent of OECD country boycotts does not imply, in this case, that the process would end – far from it. There are also precedents, such as on a recent digital governance resolution, of OECD countries opposing a resolution but then joining a process. In the case of the negotiations of a UN tax convention, there are three reasons to expect progress to follow from a majority vote.
First, the broad exclusion of most G77 countries from OECD processes means that there are multiple areas of tax cooperation that can be fruitfully negotiated among these UN member states alone. This includes, for example, possible agreement on automatic information exchange about financial accounts; on higher standards of beneficial ownership transparency, and on requiring public country by country reporting from multinational corporations operating in their jurisdictions.
In addition, G77 countries could move ahead with the creation of a framework for future negotiation of tax rules. And this is the second reason why OECD members are unlikely to boycott in practice. It was the simple threat of a few countries introducing digital sales taxes that led the affected, small group of US multinationals to force the US Treasury back to the negotiating table at the OECD, and produced the ‘BEPS 2.0’ process which has been running for 5 years now. If G77 countries were to begin negotiating a version of the G-24 proposal to abandon arm’s length pricing and move to a unitary taxation approach, with dramatic effects for the scale of profit shifting that could be achieved, the collective multinationals of the OECD would surely demand that their headquarters countries take a full part in the discussions.
Lastly, it is notable that the Africa Group resolution is carefully designed in this regard. Rather than launch straight into formal negotiations, the resolution envisages the creation of an inclusive, intergovernmental committee to set the terms of reference by August 2024. That process allows any country that opposed the resolution the opportunity to understand better what is on potentially on the table, and to assess whether their interests are better served by participating or boycotting. Given that OECD members suffer the great majority of the global revenue losses due to corporate tax abuse, the value of joining constructively at the outset may well be clear – both to OECD governments and their electorates.
What can we expect in the vote? First, there will be a number of amendments to vote upon before the final resolution.
It is now known that the UK has tabled amendments to remove all reference to a framework convention. Were these adopted, the UN membership would be agreeing to begin negotiations on establishing a non-binding framework for future discussions on tax. The UK and EU have pushed this option insistently throughout the current process. Neither has been able to countenance entering into negotiations with the possibility of a legally-binding outcome on the table – that is, to make the question of whether the instrument being negotiated is a framework or a framework convention, a part of the negotiations itself. Leaving the exact instrument being negotiated to be part of the negotiations is not at all uncommon, and this blinkered refusal from the UK and EU has been a major obstacle to consensus.
There may be additional amendments at the last minute, from the EU or others. Last year for example, the US tabled a wrecking amendment that would have removed almost all substantive content from the Africa Group’s proposal – but when it was roundly defeated, the US and all others joined the consensus on the original resolution.
This year, it is rumoured that the US will insist on putting the whole resolution to a vote (with or without any agreed amendments). At this stage, it is of course difficult to predict the outcome. We cannot know how much pressure the US, EU and UK are putting on G77 members to abandon their support for the Africa Group – although it is known to be substantial. In addition, the OECD has been lobbying intensely both for the blockers to stand firm in opposition, and for newer members that are also G77 members – including Colombia, Chile, Costa Rica and Mexico – to distance themselves.
Nonetheless, there is quiet confidence that the G77 will bring broad support to bear. While there are likely to be evident exceptions such as Singapore (ranked in the top ten of the Corporate Tax Haven Index), the indications of support from across the world are growing. The desire of countries to have their voice heard on these issues is increasingly clear. The African Union has issued an explicit call for countries to vote with it.
And so the most likely outcome, at this point, seems to be the rejection of amendments to water down the Africa Group’s resolution; followed by a majority vote in favour, with a number of OECD countries in opposition.
That would leave the non-trivial matter of agreeing a budget at the UNGA 5th Committee in December – where the blockers might try again, by aiming to starve the process of funds. But the budget required for the next stage is set at less than $US2m, and at that point will surely be found in one way or another.
And so a majority vote later today will be enough for the world to enter into the entirely unprecedented process of genuinely, globally inclusive decision-making over international tax rules.
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
