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!
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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.
This year marks 20 years of research and investigation by the Tax Justice Network into all things tax havens and financial secrecy. Providing reliable, consistent research on these issues has always been a core part of our mission and that research has empowered us, as well as others, to uncover and tell powerful stories that drive social change.
As explained in our new strategic framework launched this year, we believe there are 9 key policies that can be used to reprogramme our tax systems to work for everyone, not just the superrich. These policies include automatic exchange of information between countries; transparency of beneficial ownership information; public country by country reporting; disclosure of sufficient public data; enforcement by well-resourced and operationally independent tax authorities; good taxes encompassing a progressive and effective overall tax system; a global asset register; unitary tax – and a global tax convention under auspices of the UN.
Our new Policy Tracker is a long-term project that makes it possible to explore which countries are leading the way, and which are blocking change for the 9 policies mentioned above. It is a tool whose power lies in collaboration, as it aims to become a mechanism for gathering information that would otherwise remain dispersed among many actors. We are kicking off the beta-version of the tracker with one live-tracked policy, a UN tax convention, because this is the critical question facing policymakers internationally today. The next modules will be incorporated gradually in the coming years.
Data as a strategic asset for change
We believe that data is a strategic asset. But for it to be optimally useful, it needs to be available in a format that makes it easy to digest and understand.
It is against this background that the Policy Tracker has been developed, making data and insights more accessible to researchers and campaigners across the globe.
The tracker includes tools such as insight cards, country maps and global progress calendars, which offer user-friendly ways to keep up to date with developments in these key policies.
It can be easy to feel overwhelmed when we are faced with topics that are important, complex and fast-moving – and all of this at a global scale. The Tax Justice Policy Tracker aims to change that.
What the Policy Tracker does
http://policytracker.taxjustice.net/The Tax Justice Policy Tracker monitors and promotes progress on nine key policies that can reprogramme our tax systems to treat the needs of all members of society as equally important. The tracker will grade each country’s laws on how well the country is implementing each of the nine policies, helping governments spot where they can improve. Just like in school, grades go from A to F, where A+ means a country is fully and effectively implementing the policy and F means it’s failed it. The tracker also reports each country’s public position on each policy. Positions go from Leader, Supporter, Partial Supporter, Opposer to Blocker.
We know that scoring methodologies to track these policies involve complex decisions. Some of them will require dynamic assessments that change over time as they move towards universal acceptance and progressive implementation. That is why we want to co-design these methodologies together with the tax justice movement and other interested partners. As the tracker develops, ex ante and ex post mechanisms to provide feedback on these methodologies will be made available on the Policy Tracker’s website.
Over time, the Policy Tracker will include updates on developments in respect of public country by country reporting (potentially in the first quarter of 2024); the automatic exchange of information by the fourth quarter of 2024; beneficial ownership transparency in 2025; and for the other policies covered by our strategic framework some time thereafter.
Where the data comes from
The Tax Justice Policy Tracker will use a set of questions to evaluate over 200 countries and territories on the tracked policies. Answers to the questions determine countries’ grades and positions. Answers are based on data that is regularly collected and verified by researchers and experts from the wider global tax justice movement, including the Tax Justice Network’s Financial Secrecy Index and Corporate Tax Haven Index.
Crowdsourcing support from the public helps us respond faster to regulatory changes. If you think an answer to a question on the tracker should be updated with new data, please contact us.
Using the Policy Tracker for status updates on the UN tax convention
Importantly, this first iteration of the Policy Tracker allows you to easily track the status of the proposed UN tax convention: it tracks which countries are blocking the proposal, and who supports it; how this differs across regions; and what you need to know about the most recent and upcoming events. And perhaps most importantly: it is tracked and updated live.
This is important: One of the major policies the Tax Justice Network has long advocated for, is moving global tax policy development and oversight to the United Nations. It’s advocacy work that has paid off: there was full consensus at last year’s United Nations General Assembly to begin intergovernmental discussions on a new framework for international tax cooperation. The resolution also mandated the UN Secretary-General to produce a report identifying the main options for member states. The report was the subject of a high-level debate at the General Assembly last month, where strong support for progress was expressed, and emerging consensus points towards a legally-binding framework convention on tax.
While the Tax Justice Network has been engaged with the need for a UN-driven tax convention for many years, we know that the topic may be new to many. For this reason, the Policy Tracker also includes a high-level timeline, that explains how the conversation has progressed since 2001, when a UN panel first called for the creation of an international tax organisation.
This week, countries will be voting at the UN on what may be the biggest shakeup of international tax rules in history (you can follow the latest developments on our live blog). It’s important: a framework convention on tax can deliver binding protocols on key policy areas to curb tax abuse, and also establish a globally inclusive body under UN auspices to set rules in future. On the line is nearly $5 trillion of public money that countries are expected to lose to tax havens over the next 10 years. (You can read more about this in our blog on why the world needs UN leadership on global tax policy.)
The Policy Tracker reports countries’ positions based on public statements and public actions they make. The policy evaluation framework is available here. According to this framework, the majority of countries (60%) have publicly voiced their support in favour of a UN-led tax convention (116 out of 193 UN Members). Only 56 of the world’s nations (so, 23 per cent) are opposing the move; while 22 have not yet publicly expressed a position. The Policy Tracker makes it easy to identify which countries our respective advocacy efforts should be focusing on: by engaging with the governments of those countries who are blocking the move, along with those countries who have not yet expressed a public opinion (see the full country database here).
Since the Tax Justice Policy Tracker basis its assessment of countries’ positions on statements and actions that are public, the positions taken in private negotiations are not reflected. However, the latest information available from these negotiations suggests that the number of opposing voices is shrinking.
Over time, once the vote at the UN has been finalised, the Policy Tracker will continue to track progress with the convention itself. We encourage all interested parties to provide their suggestions and feedback on how to continue the tracking process in a possible new phase of negotiations.
How will you use the tracker?
The Tax Justice Policy Tracker complements the Tax Justice Network’s other tools for reprogramming the tax system, which include the Illicit Financial Flows Vulnerability Tracker, the Financial Secrecy Index, the Corporate Tax Haven Index, and our Data Portal.
We know that there are a multitude of insights and compelling narratives that can be developed using our new Policy Tracker. Moreover, we are encouraged to see how in this short period of time the tracker is starting to be used for advancing evidence-led advocacy strategies. Just as with our new Data Portal, we’d love to hear what you learn from the Policy Tracker, and what you’ve done with it!
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 ce 55ème épisode de votre podcast francophone sur la justice fiscale en Afrique et dans le monde, nous revenons sur le processus en cours pour l’adoption d’une Convention Fiscale Internationale sous l’égide des Nations Unies. Nous explorons également la connexion entre la justice fiscale et la finance climatique, en s’appuyant sur l’expérience de Tax Justice Network – Africa, en collaboration avec Tax Justice Network, et sur un projet de la Fondation Africaine pour le Climat. Ce projet a permis d’examiner la problématique à travers le prisme de deux pays africains : la Tanzanie et le Mozambique.
Comme invité de ce podcast, nous accueillons :
Jean Mballa Mballa, Directeur exécutif du CRADEC et membre du Conseil de TJN-A.
55 Tous pour une Convention Fiscale Internationale des Nations Unies
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]
The EU Anti-Money Laundering Directive (AMLD) amended in 2018, known as AMLD 5, required EU members to establish public access to beneficial ownership information for legal persons incorporated in the EU. However, on 22 November 2022 the European Court of Justice invalidated public access to beneficial ownership information of local legal persons. The court ruled it was not proven that any member of the public needs access to information for the purposes of combatting money laundering.
To show that beneficial ownership information is relevant beyond the fight against money laundering and the financing of terrorism, and to support many EU countries that have rightly kept their beneficial ownership registries open to the public despite the infamous ruling, we’ve prepared a briefing on more than 30 different uses that government authorities, businesses, consumers, CSOs, journalists and other stakeholders can have for beneficial ownership information.
This document explains each of the uses and offers a real-life example of when beneficial ownership information was, or would have been relevant, to address each of the uses.
The document covers:
5 cases for exposing corruption
6 cases for protecting democracy, the rule of law and national assets
9 cases for exposing tax abuse
4 cases for exposing fraud and administrative violations
3 cases for protecting the environment and mitigating climate change
5 cases for ensuring fair market conditions
4 cases for creating fairer societies
If you can think of more uses for beneficial ownership information to support a whole-government approach (where all authorities and stakeholders use and access beneficial ownership information) please contact Andres at [email protected]
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:
Los 20 años de Tax Justice Network y cómo cambió el debate impositivo a nivel global
El escaso margen del nuevo gobierno ecuatoriano para lidiar con una crisis monumental
Analizamos el mito 8 y el mito 9 en nuestra miniserie sobre los mitos impositivos: Mito número 8: El secreto fiscal es inviolable, y mito número 9: Las inversiones llegarán cuando bajen los impuestos
INVITADXS
Maria Fernanda Valdez Viceministra, técnica del ministerio de hacienda de Colombia y autora de Reducir la desigualdad “El Papel de la política tributaria”
David Suarez, jefe de analistas del Centro de Derechos Económicos y sociales de Ecuador, el Cedes
María Eugenia Marano, abogada, miembro del Espacio de Trabajo para la Equidad Fiscal (ETFE), y contribuidora a “Mitos impuestos: una guía para disputar ideas de lo fiscal”
Alejandro Gaggero, director de la carrera de Sociología en la Universidad de San Martin de Argentina y miembro de ETFE, el Trabajo para la Equidad Fiscal
Welcome to the 71st 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 #71 من بودكاست الجباية ببساطة يناقش وليد بن رحومة ومعدة البودكاست نورهان شريف آخر التطورات في إتفاقية الأمم المتحدة الضريبية على ضوء مشروع القرار المنشور حديثا.
In issue #71 of the “Taxes Simply” podcast, Walid Ben Rhouma and Nourhan Sharif discuss the latest developments in the United Nations Tax Convention in light of the recently published draft resolution.
Diversas gerações de mulheres, homens e crianças que deveriam ser livres foram ilegalmente escravizadas. Os sistemas financeiro e tributário brasileiros foram alguns dos que se beneficiaram deste crime contra a humanidade.
O tráfico ilegal de pessoas no século 19 segue presente na forma de consequências nas vida das pessoas descendentes daquelas que foram escravizadas.
Como os sistema financeiro e tributário podem contribuir para a fundamental reparação? Este é o tema do episódio #54 do É da Sua Conta.
A necessidade de apuração e debate sobre a responsabilidade de instituições financeiras no Brasil envolvidas com a escravização ilegal de pessoas no século 19, com a professora Beatriz Mamigonian, da Universidade Federal de Santa Catarina.
Como conectar o maior crime contra a humanidade do século 19 com o atual Banco do Brasil? Júlio Araújo, procurador do Ministério Público Federal, fala sobre os próximos passos do inquérito para investigar o envolvimento do Banco do Brasil na escravização e tráfico de pessoas vindas do continente africano.
O processo internacional de reparação e de remediação – enquanto o sistema neoliberal for sinômio de neocolonialismo – como Priya Lukka, macroeconomista.
A tributação como instrumento de reparação e a reparação como princípio orientador da tributação, com Alex Cobham, da Tax Justice Network.
“ Da mesma maneira que a gente fala que o Banco do Brasil teve acionistas e diretores traficantes, a gente pode falar de famílias envolvidas na política, que são famílias de fazendeiros e detentores de pessoas escravizadas e não só fazendeiros, mas também traficantes: os maiores eram fazendeiros e traficantes. A ideia é pensar a escravização como algo que não acabou; está na estrutura do sistema”. ~ Beatriz Mamigonian, professora da Universidade Federal de Santa Catarina
“É importante criar uma situação em que haja um conjunto de reparações que possam ser consideradas justas do ponto de vista simbólico, de memória e de verdade, mas também do ponto de vista da compensação monetária e financeira sobre esse tema.” ~ Júlio Araújo, procurador da República
“Remediar, especialmente quando se trata da forma como a economia mundial está configurada, da sua governança e dos seus mecanismos de elaboração de regras, deveria significar que os ex-países colonizados, que são também os países que estão lutando com o próprio desenvolvimento, teriam mais controle sobre como desenvolver e gerenciar os mecanismos que cercam suas economias. ~ Priya Lukka, macroeconomista
“A primeira coisa que precisamos fazer é impedir que a escala da riqueza extraída do Sul para o Norte aumente ainda mais. Parar com isso agora parece cumprir o tipo de agenda de justiça fiscal com a tributação unitária e todas as diferentes medidas em torno da transparência.” ~ Alex Cobham, 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. In this edition of the Taxcast:
The US government has spent an estimated $1 trillion on their ‘war on drugs.’ But, over 50 years later, the cross-border flows of illegal drugs, arms and money have increased. In the second part of a two part series (part 1 available here) we look at the failed ‘war on drugs,’ the movement to decriminalise, regulate and tax, opportunities and challenges for lower income nations, and the role of tax justice.
Featuring:
Associate Professor of International and Organised Crime at Bristol Law School, Dr Mary Young
Taxcast host Naomi Fowler, co-produced with Jo Barratt of the Tax Justice Network
A transcript of the show available here: (some is automated)
“In terms of a percentage of global GDP, the tax that’s currently being lost by not taxing the drug market is about $232 billion per year. So to put that into context, that’s more than twice the annual spend prosecuting the war on drugs. And it’s way, way above the combined global aid budget.” ~ Martin Drewry
Naomi: “On the Taxcast this month, we continue with part two of drug war myths. In Part 1 we challenged the idea of the supposed ‘goodies’ and the ‘baddies’. And in Part 2 we’re going to shine the spotlight on the less visible professional enablers, and we’re going to talk about how to fix the mess of the war on drugs – tax is an important part of it.”
Dr Mary Young: “We need to be looking at white collar criminals.”
Naomi: “This is Associate Professor of International and Organised Crime at Bristol Law School Dr Mary Young.”
Dr Mary Young: “I now use the term ‘money managers,’ you know, the people who manage money. The people who manage money for us, manage money for criminals. And they manage it in exactly the same way, but we need to be focusing on these groups of people. And these groups of people are usually embedded within policymaking and they feed into the vested interests of the US government and the UK to keep those financial services industries very tight, ticking and wealthy in financial secrecy centers. We only need to look at the scandals which are coming out, where we see different levels of tax abuse and I think that we, we shouldn’t differentiate between legal and illegal, I would blanket it all as a tax abuse. And we see wealthy government officials, politicians, those of a high social status using these foreign tax havens and financial secrecy jurisdictions to maximize personal wealth, circumvent domestic tax laws, and where possible, hide dirty money.
You know, you have an amazing symmetry between organised crime and the upper world. Organised crime is just an economic enterprise. There are symmetries between legitimate organisations and organised crime bodies and upper world business ventures and they all have profit at their core. So, organised crime groups, legitimate businesses, the government, massive NGOs even, huge organisations, business operations, they use bankers, they will need lawyers, they will need accountants.
One financial intermediary told me, ‘I’ve done very well out of it, thank you very much. My children have a brilliant life and I’m really wealthy.’ And he was very happy to tell me and boast about the amount of money he makes from being a private banker. And he was also rejecting any type of criticism about the overseas territories. So, financial intermediaries, they either know something is going on, but they will also embrace criminal organisations. Why wouldn’t you? You just do your job, you bring the money through, you keep your eyes on the numbers and you don’t ask any questions. Those financial intermediaries, those excellent mathematicians, numbers guys that criminal organisations use will be happy to look the other way, it’s simply a job. You’re just part of a corporation, another type of corporation. This one just happens to be a bad business. So on that spectrum of illegality, you have your big corporations, your big multinational trading companies, the ones we see everywhere, you know, delivering our goods, for example, or inventing our phones. And then you have other types of corporations which just happen to be operating at the illicit end of the spectrum, but they mirror, in so many ways, our huge organisations, and that’s when I feel a little bit like, hang on, maybe we shouldn’t be demonising criminal organisations quite so much as we should be investigating and focusing on the politicians, on the bankers, on the accountants.
And that means stepping away from the obvious criminals. Step away from the drug traffickers and focus on what’s in front of you now, organised crime walks with us everywhere, it’s everywhere. Once you get used to identifying criminal outfits, even in the town you live in, you realize organised crime is a part of our life and we can’t really deny that. So think of it as a circle. So you have your tiny circle in the middle, which might be those that we demonise already, the criminals. And then we branch out, and we have this network of white collar workers leading up to the top, leading up to politicians and governments. But conversely, if you talk to them, they don’t like to be called criminals. They don’t like to be associated with the criminality that we see reported about in the paper. Oh no, they’re not as bad as drug traffickers. They’re not as bad as those who illicitly traffic wildlife goods, floras, faunas, ivory, rhino horn powder. No, they’re not part of that world, they don’t believe themselves to be part of that world, they are part of a different dynamic. They are somehow better. They’ve been to university, they’ve got degrees. So quite often when you speak to some of these people, you speak to people who’ve investigated them, the white collar criminals reject the term criminality in some cases because they see themselves within a different sphere and let’s remember that offshore financial centres do not say they have secrecy laws.”
Naomi: “Oh of course not!”
Dr Mary Young: “They reject that term. I’ve been heckled for using the term secrecy. They call it ‘strong confidentiality.’ So you have these strong confidentiality laws and then you have another body of laws where there are really decent people who want to recover the proceeds of crime find it incredibly difficult to do so because of the criminal penalties set up around releasing information. So, throughout the decades since the Organised Crime Control Act of 1971, we’ve had a raft of anti money laundering laws created by Western countries. which show they’re doing something, which tick the right boxes on paper, which say they’re disrupting major criminal organisations engaged in narcotics and money laundering. But we would see huge amounts of money being recovered, we would see corrupt government officials being removed from office, and it just does not happen.”
Naomi: “It doesn’t. And throughout these decades of prohibition, the money flows from the illegal drug trade are only deepening inequalities and insecurity between the global south – where the ‘producer’ countries often are, and the world’s wealthiest and most powerful countries, which tend to be the main ‘consumer’ countries. Zara Snapp from the Instituto RIA explains in this recent online event:”
Zara Snapp: “In Colombia they produce, you know, 95 percent of the cocaine in the world which is for export and less than 1 percent of the revenue gains stay in Colombia. And so this is something that’s important of then how are even revenue gains being distributed along the production chain? Whereas 68 percent of those revenues stay in the countries of consumption, which is primarily the United States for that market, and some in Europe.”
Gustavo Petro speech (voiced by Marcelo Justo): ”Our silence in these 50 years has been complicit with a genocide in our countries because that is what the official war policy against drugs has caused in our Latin America, a genocide. The so-called ‘war on drugs’ policy has failed. It doesn’t work. If we continue, we are going to add another million deaths in Latin America and we are going to have more failed states and we are going to have perhaps the death of democracy on our continent.”
Naomi: “That was Colombian president Gustavo Petro speaking recently at a Latin American and Caribbean conference on drugs. And there are important shifts happening in many countries. Some nations are turning away from prohibition to decriminalisation and regulation, in some cases legalisation.”
Music clip: Legalise it, Bob Marley live
Naomi: “ In 2015 Jamaica passed its Dangerous Drugs Amendment Act which did various things – it decriminalised personal possession of up to two ounces (or 56 grams) of cannabis, cultivation of up to five cannabis plants per household and also legalised and regulated commercial cultivation and sale of cannabis for medicinal use.”
TV Presenter: “The passing of the bill comes as good news for the country’s Rastafarian community, which uses the herb for religious purposes. While marijuana would be legal, the bill makes provisions for it to be banned from public places. Plus, a licensing authority would have to be established in order to monitor cultivation, sale and distribution of marijuana for medical and therapeutic purposes.
The bill was passed even as South American countries grapple with the impact of drug use and struggle to put an end to drug trafficking. In Mexico, Colombia and Argentina, marijuana possession in small amounts was decriminalised. Argentina is drafting a set of proposals to loosen restrictions on possession. Also in Guatemala, President Otto Perez Molina is proposing moves to push for the legalisation of marijuana. Chile and Costa Rica are also debating the introduction of medical marijuana policies. Uruguay last year became the first country in the world to approve the growth, sale and distribution of marijuana.”
Naomi: “ Jamaica’s just one of a number of nations that’s taken steps to decriminalise and regulate in place of punitive policies. Before they passed that bill, 15,000 people were being arrested every year for cannabis possession. A quarter of all Jamaica’s court cases were dealing with cannabis-related offences, their prisons were overcrowded and it was costing an estimated $US64 million a year in arrest and prosecution costs. It was a transformative step, putting public health and wellbeing first. It meant they were able to massively increase their health budget expenditure the following year. It all ran contrary to the perceptions of outsiders. Dr Mary Young again:”
Dr Mary Young: “I’ve spent a lot of time in Jamaica over the years since 2012 and the people I’ve worked with in Jamaica are absolutely dedicated to undermining organised crime and actually are frustrated by the external elements which do not assist them in a positive manner. Drugs was traditionally seen as an issue for the U. S. as emanating from Jamaica. So, there was a lot of focus on U. S. assumptions on what Jamaica was and how Jamaica operated. we carried out interviews actually with a number of people on the issue of drug trafficking and crime in Jamaica, and we were repeatedly told that drug trafficking as a main security threat is not relevant to Jamaica. It’s the firearms threat from the U. S. which is relevant to Jamaica. But it was these historical U. S. assumptions and policies about drugs and organised crime which has kept Jamaica and other countries held down, especially if they’re countries which are indebted to the World Bank and the International Monetary Fund.
So you have Jamaica an hour away from the Cayman Islands. One of them is hugely wealthy, highly developed and supported by Western governments, not just Western countries, many countries all over the world and the people within them will use financial secrecy centres, offshore financial centres, tax havens, whatever you want to call them. And next to it, an hour away, you have Jamaica, which is indebted to the World Bank, the IMF, which is struggling against the massive tide of firearms which repeatedly come into its jurisdiction every single day. And when you start to look and see how much has been confiscated, it’s overwhelming to view.
But Jamaica is saying, hang on, actually, the biggest issue is firearms trafficking, and the multiple homicides that happen every year. What are you going to do about it? So when I’ve worked with peers and colleagues in Jamaica, we talk about the US needs to be checking its own borders, why are firearms coming out of the US? Why are they leaving Miami? Why is it so easy for them to leave Miami and end up in Jamaica? And they’re all US manufactured. They can check the codes on the guns. They can check the brands on the firearms. Yet, the US doesn’t do anything at its end. And it comes back to that historical war on drugs.”
Naomi: “That ‘war on drugs’ has served organised crime groups, multinationals and financial secrecy centre self-interest all the more easily because of colonial attitudes and beliefs. Sergio Chaparro Hernandez of the Tax Justice Network:”
Sergio Chaparro Hernandez: “The world is increasingly realising that bad drug policies can cause more harm than drugs themselves. The painful history of bloodshed and corruption in a country like Colombia where I am from has a lot to do with bad drug policy. If we had opted for regulating drugs in a responsible manner rather than prohibition, we would have prevented institutional destabilisation and violence with the thousands of deaths and all the harms they have caused.
The alternative will be a responsible model to legalise drugs, which recognises that instead of prohibiting drugs, they should be treated as a public health problem which builds upon the lessons learned from regulating industries such as tobacco or alcohol.
The United States has been the big driver of the war on drugs. And if a just international policy is to be advanced, any undue interference that prevents producer countries from choosing their own regulatory models should be eliminated, and countries that have driven the war on drugs should implement policies of reparation for the harms caused by prohibition.”
Martin Drewry: ”We believe that prohibition is one of the things that creates and sustains extreme disparities of wealth within the countries of the global south that have kept them economically poor. And tax justice is an essential part of correcting that.”
Naomi: “This is Martin Drewry of Health Poverty Action speaking at a recent event:”
Martin Drewry: “So what do we mean by tax justice in the context of a legally regulated drug market? What is the role of tax for that, thinking especially of countries in the global south? First point I want to make is something about just the scale that we’re talking about. So the size of the global drug market, estimates vary from 0. 5 percent of global GDP to about 1 percent of global GDP. Some people think it’s a bit higher, certainly will probably become higher as the cannabis market grows, for example. But if we take that figure of 1 percent, the global average tax rate per, for the world is 29%. But what that would work out as in terms of a percentage of global GDP, the tax that’s currently being lost by not taxing the drug market is about $232 billion per year, based on those estimates. So to put that into context, that’s more than twice the annual spend prosecuting the war on drugs. And it’s way, way above the global aid budget, the combined global aid budget. So, these aren’t small amounts, but for the poorest countries, it’s much, much more significant than that. So these numbers, in a country like the US or the UK, sure, you know, we did a report on legalising cannabis and it could have offered another billion pounds a year to the National Health Service. So it’s not insignificant, but you know, it’s not going to fund our health systems. But in the U. S., for example, per capita per year, the spend on health per person per year in the U. S. is $9,536. In Ethiopia, it’s 24. In Ghana, it’s 80. In the DRC, it’s 20. Across the lowest income countries as a whole, it’s 41. So this is why tax is important. There are lots of things we can do with tax. Tax doesn’t just come, this is one of the key points, it doesn’t just come from a product-specific tax. So we have an alcohol tax, for example, and we can have a cannabis tax, and that’s important. But bringing the drugs market into the licit economy also enables income tax, we want progressive corporation taxes, we want tariffs. One of the things in trade justice is that to address the disparities of wealth between the global south and the global north it requires building up the economies of the global south.
Now, Africa has a supreme comparative advantage for cannabis growing, for example. Most of the profits won’t come from the raw cannabis, they’ll come from the processed stuff, and they’ll come from derivatives, and they’ll come from other kinds of products associated with the use of cannabis. It’s important to build those industries in poorer countries. So one of the ways that you can do that is to prevent, and that’s another role of tax, preventing corporate capture because you disproportionately tax the rich corporations and their exports into the country, you put tariffs on those in order to protect the infant industry. So there’s a lot of things that can be done using tax as an instrument and we need to become experts in these because if we don’t design the proposals, the corporations will!”
Naomi: “And not only corporations, but the nations they’re headquartered in. Sergio Chaparro Hernandez worries that while decriminalised, regulated drug industry policies would indeed knock a lot of organised crime out of the equation, which is great, raise tax revenues and help improve things like healthcare, which is also great, but the benefits economically could end up being dominated by – you guessed it, global north nations and their multinationals.”
Sergio Chaparro Hernandez: “What is paradoxical and grossly unfair is that producer countries will end up being late to the regulation game after decades of suffering the perverse consequences of prohibition, while the benefits will be reaped by countries that are consolidating a legal industry first, such as the United States and Canada.”
Naomi: “And those countries are moving fast now on decriminalising and regulating cannabis. It’s also kind of ironic that a number of tax havens or financial secrecy jurisdictions are developing regulated cannabis industries partly to move themselves away from overdependence on their finance sectors, just as the financial secrecy market’s getting slowly squeezed by transparency initiatives – pushed by people like us!
At the moment the global legal cannabis market alone is estimated at over US$24 billion and that’s expected to quadruple in the next ten years. So it’s easy to see why developing a decriminalised, regulated and taxed cannabis industry is attractive. But it depends on which country’s doing it: there are richer world producer nations and markets, and poorer producer nations and markets, serving different clientele and facing different realities and economic power imbalances globally. All this enthusiasm for new revenues from regulated cannabis industries could end up with lower income nations dealing with yet more of the same domination by big players and global trade inequities that they already face. But, first things first:
Should lower income countries be focusing their land use on sustainable food production for domestic use, especially given the climate crisis? I mean, we know there’s this increased chance of crop failure that drives up food prices. Should they be thinking about developing a cannabis industry in that context?”
Max Gallien: “I think that’s an excellent question and I think looking at cannabis in the wider context of agricultural policy is, is really important.”
Naomi: “I’m talking to Max Gallien of the International Centre for Tax and Development and the Institute of Development Studies at the University of Sussex:”
Max Gallien: “Obviously countries’ policy regarding cannabis cultivation will have to be placed within their wider kind of country-specific agricultural and industrial strategy. I think for many countries, dramatically expanding production is certainly risky, both given the young and uncertain global market, but also other priorities they may have in agriculture. The important thing to highlight, though, is that I think for many countries, cannabis production is already a reality. Many countries, including in Africa, are already producing cannabis, already have producers that have been used to producing this for a very long time, that have been relying on and specialising in these crops for a very long time, that have regions that are particularly specialised in this, for example, if we think about the Reef Mountains in Morocco. So especially for these regions, thinking about the future of that crop and the future of its taxation and marketing is really important, even if we’re not necessarily advocating for new large scale cannabis development.”
Naomi: “Right, right. it depends on the country and their own context. And because the decriminalized cannabis industry at least globally, is in its infancy, really, do you have hopes that this kind of newness represents an opportunity for lower income nation governments at least to try to do things differently in terms of the way they manage their economies? I know you’ve written about some really interesting legalisation models, focused on incentivising smaller scale production for example.”
Max Gallien: “I think, yes and no. So, so on the one hand the market is still developing, and this is still a young global market, it’s a market that, you know, is more legalised in some areas than others, is more legalised with respect to certain types of products than to others. So, a lot is still in flux, and this is partly what makes this entire policies area so exciting. There are very few opportunities where we get to see a new legal market develop, where we get to see policymakers shape the context for this market and what is furthermore really exciting is that we do see new models coming up, and we see really, really interesting ones. We see some countries opt for a less overtly commercialised cannabis market than the U. S. and Canada has. Malta has been a good example of that, but especially Germany, a very, very large market, not opting for an openly commercialised model, but looking more at kind of smaller cannabis clubs and private production, is really, really interesting and makes this a really, really exciting market to watch.
However, while the market’s still developing and is still young, it’s also not in its complete infancy anymore. And I think that is really important for especially lower income and lower middle income country developers to, to keep in mind that yes, they have an opportunity to shape policy in a new way and to do things differently, but they’re doing that in a context of a global market that is already developing, where they’re not the first movers.
If they’re focusing on their domestic consumption, there’s wide open spaces still, if they’re focusing on regional consumption. But if they’re looking at global markets, they will have to reckon with the existence of, especially the North American market, which is large and highly capitalised and highly commercialised. So in some ways, there’s wide new areas for policymakers, but in other areas, there’s already the realities of kind of global competition that are already being developed.
One further point that I think is, is important to remember as well, is that there’s another market that already exists, which is the illegal market. So, obviously, the legal market is, is still in its infancy and is still being developed, but the illegal market has been around for a very long time. And despite some more optimistic projections, it’s not necessarily going to go away by itself. So policymaking for the legal market will also have to keep in mind the effect of this new legal market on the already existing illegal market.”
Naomi: “Right, and what’s quite interesting is if you contrast the experience in Malta, for example, where I think they were running a non profit legalised market, where in Malta, they don’t necessarily have the same need or desire for a foreign currency to come in, and to trade internationally. Whereas if you look at Malawi, maybe they do, so that kind of nonprofit market, why would that work somewhere like Malawi?”
Max Gallien: “Exactly! So exactly the question for policy makers and countries that are thinking about legalisation is, are we thinking about a domestic market only, or are we thinking about export? And if you’re thinking about export, the policies around that will have to look quite differently than if you’re just thinking about satisfying a domestic market or domestic interest. And that is particularly important for countries that are already de facto dependent on cannabis export. Morocco is a classic example of this, this is a country that is, although currently largely illegally, already dependent on cannabis export that has large numbers of farmers and entire regions that are quite dependent on this crop. And these export structures so far have largely been illegal. They’ve been providing most of the European market for quite a long time. But they’re now competing with the new legalised market and are now having to situate themselves in relationship to new legalised market, to new products coming in from other places, being produced in other places. And consequently, the policy choices look quite different than a country like Malta that can primarily think about its domestic market.
Naomi: “We’ve got to keep in mind here that of course, decriminalising and regulating these industries are about way more than revenue raising and development, they’re also about taking a different approach to prohibition that’s only enriched and empowered organised criminal groups and the professional enabler industry that’s there to serve them. Back to Max again.
You say there are important lessons to be learned from the tobacco industry in terms of how nations can better design tax systems. I know that over 10 percent of the global tobacco market is still illicit, which is really interesting.”
Max Gallien: “It is. It’s, it’s a really, really important thing about the global tobacco market that we don’t talk about often enough is how much of it is illicit. Cannabis is interesting here, it’s one of those cases where, you know, we often say policies shape markets and markets shape policies. The tobacco industry has been highly concentrated around what we often refer to as ‘big tobacco’, around these large multinational organisations that have certainly had their influence on how policy on tobacco taxation has developed, especially in lower income countries, especially in Africa. And there’s extensive documentation of the tobacco industry seeking to influence policymaking in this area, and especially lobbying for lower taxes and pointing to the illegal markets as a reason for why taxes should be lower, arguing that if taxes on tobacco are increased, then smuggling will become more of a risk and this fraction of the market that is already illicit will grow. Now we’ve done a little bit of work at the International Centre for Tax and Development, we’re absolutely not the only ones who’ve done so, that have highlighted that that connection is really not that strong, that just because you increase taxes does not necessarily mean smuggling goes up, and that that narrative under appreciates the role that the legal tobacco industry has also historically played in in tobacco smuggling, but I think it highlights that lobbying and industry influence on policymaking, especially when there’s a power imbalance between large multinational companies and lower income countries administrations is is a real threat. And it’s something really concerning, I think it’s something that as the global cannabis market develops we’ll also have to watch out for.”
Naomi: Yeah, definitely because all experience tells us how markets always tend to organise themselves in terms of domination by the biggest, the most heavily capitalised players. And we know that tax justice and tax is a great tool to incentivise and disincentivise certain behaviours if governments want to do that. So do you have faith that governments, nations, lower income nations in particular, can design a tax system that can do what no other nation has really done in the ways we’d like to see, not just in this economic sector, but, but in others?”
Max Gallien: “That’s a lot of faith you’re asking for! I think it’s, it is unlikely that what we’ll see in cannabis will be completely different from any other export crops from any other similar industries that we’ve seen. And I think seeing it develop completely different or seeing kind of these radically different models that we see in Malta or, or have been discussed in Mexico or other places becoming the global standard, I think that is unlikely. However, where on that spectrum between a completely different approach and repeating some of the mistakes of of the past we lie, I think is really important and I think tax policy has a, has a big role to play in that. As you say, it can incentivise policies. It can play a central role in making sure you extract profits at the point where they’re accumulated and not necessarily at the point where kind of smallholder farmers are engaging in traditional practices. It is also a way to shape markets. It’s a way to influence who gets to be involved in them. One of the things that we’ve seen in some countries that have really recently legalised is if the licensing fees for producing cannabis are really, really high, that often means that the only producers that can pay these fees are already quite large organisations and that might crowd out other, other actors.
So I think all of this will be extremely difficult, but it will be helped if developing country policy makers can be part of a conversation quite early on where they can help identify what their goals In the legalisation process are, what their goals on a newly developing global legal market are. Is it around export? Is it around focusing on the domestic market? Is it about focusing on smallholder farmers in, in a local context that already exist, or is it around expansion of production? what are their assumptions about an emerging international market? If they’re thinking about export, are they thinking about a regional export? Are they thinking about a more global scale? Are they thinking particularly about the kind of crop itself or about processing and upgrading? So I think being very explicit about the goals, about the consequences of the goals, and then the policies that need to follow from that. It’s still an uphill struggle, but it gives you a bit of an advantage in a, in a very, very fast moving market.
I think that the writing is on the wall in terms of the creation of a global legalised market. I think it’s hard to imagine a future over the next few decades where that’s not increasingly becoming the norm and where these markets are not increasingly connected globally. So I think it’s also a question of positioning within that market, anticipating where it’s going to go and thinking of what that means, especially for producers that have traditionally produced illegally. So, I think one of the motivations for me is really to think about from the perspective of places like Mexico, places like Malawi, places like Morocco, that are going to feel the changes of these changing global markets whether they change national policy or not, and thinking how they can react to that and how they can anticipate that, I think, is, is really important.”
Karina Garcia-Reyes: “As a society, we have to accept that there’s no perfect solution.”
Naomi: “This is Criminology lecturer and writer Karina Garcia-Reyes of the University of the West of England. We heard from her in part one of drug war myths in the previous Taxcast.”
Karina Garcia-Reyes: “There’s no silver bullet here okay, and interestingly, we prefer a very violent strategy that is really damaging us instead of something more nuanced that actually minimises consequences, So, this is a very complex solution, I acknowledge this, but to me, legalising drugs is the first step, but we have to manage our expectations. Violence, unfortunately, will always exist because even if we legalise drugs we have so many other markets in organised crime but at least from my perspective, in countries like Mexico, where most of this violence at the moment is linked to drug trafficking, to this market in particular, violence will be minimised considerably. And in a country with so many homicides and so many disappearances, this is really something to consider because whereas the United Nations and the US and the UK dictate the global policy, we, countries like Mexico, Colombia, we are contributing with the deaths and disappearances. And that’s very, very painful.”
Naomi: “Eric Gutierrez of the International Centre of Human Rights and Drug Policy.”
Eric Gutierrez: “I would say that legal regulation of drugs is a key option to consider. Law enforcement has not won the war on drugs, there has been, you know, wars on drugs for decades now, and, you know, if there will be some kind of clampdown on tax avoidance mechanisms, that may be a way to win that war without firing a shot and at the same time move the illegal, illicit drug trade to legal regulation where taxes can be raised and be used to pay for the public good. If there will be reforms to prevent tax avoidance, then taxing through the legal regulation of drugs will also work.”
Naomi: “This is a complicated subject. But it is clear that prohibition and punitive drug policies and the so-called war on drugs have a) failed and b) are making inequalities between north and south even worse. New approaches that are health and human rights-based are urgently needed across the board, it’s a matter of life and death. We know tax justice can play a key role in a decriminalised environment. And of course, the starting point for nations like the UK and the US is to put their own houses in order and end financial secrecy. And instead of investing in militarisation, they should be investing in harm reduction programmes, not only domestically but also overseas in the producer countries – it’s part of the reparations they owe, their moral debt.”
In mid June 2022, farmers across Pakistan gazed out across thriving fields of rice, maize and mung beans, looking forward to bringing in the harvest in a few months’ time. Then the floods began: nearly half of the country’s crops were washed away, obliterating the entire annual income of many farming families. Scientists assess that climate change made flooding of this scale significantly more likely, and that poverty could turn this weather event into a human disaster.
What, if anything, does this have to do with the tax justice movement? Is there more that could be done with taxation to address international climate injustice of this kind? Until now, the tax justice and climate justice movements have tended to operate in isolation from each other, despite having many common goals and objectives. This is the second in a series of blogs by the Tax Justice Network examining issues at the intersection of these movements. (The first blog looked at beneficial ownership and fossil fuels, alongside a more detailed report on delivering climate justice using the principles of tax justice.)
In this piece we explore a radical new model known as ‘cap and share’ that Equal Right have developed alongside international collaborators. It bears little resemblance to ‘cap and trade’ – the emissions trading system used in the EU. In cap and trade, companies – rather than democratic bodies – set the carbon price, and money flows mainly between these companies, rather than to the people or to the Global South. Emphatically not ‘cap and trade’, the model cap and share instead centres around an international carbon tax on fossil fuel extraction. This tax is coupled with a fast-falling extraction cap and the revenues are used to fund global green investment and worldwide cash dividends. The system is designed with global and social justice at its core, and seeks to up-end the key problems inherent in many other carbon taxing and pricing proposals.
The trouble with national carbon taxes: ‘polluter wins’
A defining feature of cap and share is that the tax revenues would land first in an international fund rather than in the national budgets of each country. This is key for climate justice and for global justice, as it would redistribute money from Global North to South and reverse the usual ‘polluter wins’ conundrum inherent in national carbon taxation.
This conundrum arises because the most-polluting countries, by definition, have the biggest carbon tax base, so they secure billion dollar carbon tax revenues for national public spending. Low polluting nations – predominantly in the Global South – see the opposite impact: they would receive practically nothing from the same rate of carbon tax, in fact often being hardest hit by a carbon tax, even though they are often also suffering the worst effects of the climate emergency.
This new concept of cap and share would allow us to tax fossil fuels at source, with the money going directly into an international fund, and the cost passed on automatically down supply chains, landing mostly with big fossil fuel consumers in wealthy nations. This would ensure that polluters pay, but it is the international community – in fact, the people of the world directly – that would benefit financially, rather than the polluting nations’ national governments.
Making carbon tax progressive
These direct financial benefits for the world’s people are key for generating this system’s progressive effects, both at the macro level to reduce inequality between Global North and South, and at the micro level to support households through the transition.
The ‘share’ element of cap and share consists of two key components:
Climate grants for the Global South, to facilitate debt-free spending on loss and damage recovery, adaptation and mitigation in lower-income nations.
Universal cash dividends for people in every participating country, to pump carbon tax money back into the world economy at the global grassroots.
Both of these are of vital importance in making the impacts of this system progressive.
(This proposal opens up multiple questions. Which body would collect international carbon taxes? How would they be enforced? How much would be raised? Does it need to be global, or could a few countries act together to get it started? And what would all of this do for the climate? We have ventured some answers to these questions in our discussion paper ‘Climate Justice Without Borders: Cap and share as a mitigation and climate finance solution’. However, this is only a beginning.)
Climate grants for the Global South (and for other most affected people and groups such as indigenous communities in higher income nations) could shift around a trillion dollars per year to lower-income nations, directly reducing global inequality. Further monetary transfers from Global North to South would also occur via the ‘national allowances’ element of the system. This is part of the ‘cap’ side of the equation. It requires countries that exceed their fair per capita share of fossil fuels to negotiate for temporary use of low consuming countries’ spare national allowance.
Meanwhile, cash dividends are essential for making the system progressive at a micro level. It is more or less inevitable that carbon taxation will increase the price of fossil fuels. As a result, the price of energy, transport and other goods will increase until renewables provide the bulk of the energy mix. Without dividends, people would have to cover these price increases from their own pockets, and as lower income households tend to spend a greater proportion of their incomes on necessities, the impacts of carbon taxes can become regressive.
Cash dividends are therefore key because they offset much or all of this extra spending. For low consuming households (most of whom are lower income households) the dividends substantially overshoot these extra costs, so providing a significant cash boost to their monthly household budgets.
As shown in our modelling, the effects vary progressively according to income group. In the first year of the system, people on average incomes in high income countries would see some, but not all, of their extra energy costs offset. They would be down $50 per person per month with dividends, versus $81 down without dividends. People on low incomes in high income countries would see smaller losses of $13 with dividends, versus $44 without.
These losses assume people continue to consume fossil fuels at the same rate as they do today – which may be unlikely once these price nudges come into play. Nevertheless, governments of high income countries should be pressed to act to support their low and middle income earners through this transition, with proposals such as free basic energy and free public transport potentially becoming important in securing standards of living once carbon taxes are in place.
The picture looks different in the rest of the world, where fossil fuel use and therefore carbon tax spend is much lower, leading to net gains for most households from the cap and share system.
In upper middle income countries, dividends would broadly offset people’s extra energy costs, with small $3 losses for those on average incomes, and $12 gains for those on low incomes. Lower middle income countries would see net gains for both average and low income earners, of $10 and $20 per month respectively for every adult and child. In low income countries, most people would see net gains of $23 to $27 per month, likely to be enough to raise everyone from their current consumption level to above the extreme poverty line ($66 per month).
International taxation: the next big thing in tax justice?
These progressive and global justice-supporting effects are only possible because the carbon tax at the heart of cap and share is international. Cap and share therefore represents a radical rethink in what might be possible in tax justice. To date, the movement has focused on taxation at the national level – and for good reason, as no infrastructure yet exists at the international level for collecting or redistributing tax. However the five R’s of tax justice currently also only happens within borders. Tax redistributes wealth inside countries but not between countries, and the international democratic process – including the UNFCCC process – remains sorely lacking in terms of grassroots representation.
The climate crisis should change everything. There are no borders in the atmosphere, and my pollution here can destroy your life over there. Furthermore, the relevance of money and tax in the climate emergency cannot be overstated: poverty makes one immensely more vulnerable to suffering when crisis strikes. So securing people’s incomes should be considered a top priority for climate action. This becomes yet more important when we consider the injustices which have created both poverty and climate change: extractivism, colonialism and exploitation, all perpetrated predominantly by the countries and corporations of the North against the nations and peoples of the South. If ever there were a time to accelerate our ambitions on tax justice, and consider taxation without borders, this is it.
Building the movement: tax justice activists needed
The cap and share movement is being built by a global network of activists, working together via the Cap and Share Climate Alliance to explore the potential of these ideas and campaign for their introduction. As these partnerships expand worldwide, new priorities are incorporated into our cap and share proposals, co-creating a more holistic system for climate justice.
The tax justice movement should become a key player in this development. With decades of experience in fighting for justice, and of winning real gains for the people of the world on the international stage, the movement has a huge amount to contribute in developing international carbon taxation and, more broadly, for cap and share. Winning this will be far from easy: many more shoulders are needed at the wheel, and the tax justice movement is likely to be one of the most important partners of all to help make this campaign succeed.
The time is now
Will it succeed? We can only try. Imagine, though, if it did. Cap and share is a system that could provide for us all, by taxing fossil fuel extractors and major consumers and redistributing that money worldwide. For the first time, it proposes a taxation system that operates beyond the nation-state, harnessing the power of tax to address global inequality and injustice directly, which is key for climate justice, and is in many other ways long overdue.
As the tax justice movement knuckles down on the idea of carbon tax, cap and share is a call to think beyond borders. And it asks the difficult but essential questions: “If not now, then when?” and “If not us, then who?”
Equal Right is a global justice organisation working for economic justice without borders. Find out more at www.equalright.org
Today marks 20 years of research and investigation by the Tax Justice Network into all things tax havens and financial secrecy. Providing reliable, consistent research on these issues has always been a core part of our mission and that research has empowered us, as well as others, to uncover and tell powerful stories that drive social change. Today, our data and research is trusted and used by governments, international bodies, journalists, academics and campaigners around the world.
Through the course of our work, we at the Tax Justice Network have gradually built one of the world’s richest databases on countries’ tax and financial transparency-related regulations. Knowledge and data we have gathered through various research efforts over the years have steadily been amalgamated into a single, searchable internal database containing over 400 variables covering up to 195 countries. This well of knowledge has become an invaluable asset in our own research, advocacy and day to day work.
Today, we’re thrilled to announce that we’re launching the Tax Justice Network’s Data Portal. The new tool allows you to easily search, access and download from the wealth of information held in the Tax Justice Network’s database. The Data Portal also holds data on various other indicators of tax havens and secrecy jurisdictions that we’ve curated from external data sources, including data from the UN, the World Bank, the IMF and academic sources, making the portal a one-stop-shop for all things tax and financial transparency.
We’ve always recognised that our research can have a much bigger impact by making it available to everyone, everywhere, rather than by keeping our research to ourselves. That’s why it’s been our policy from day one to make our data and research transparent and accessible. As those of you familiar with using our research will already know, we regularly provide the data behind our research reports, usually in the form of tables, excel files and fact sheets.
This works fine if you’re looking to learn more about or verify the data behind one of our research reports, but it’s less ideal if you’re looking for specific data to use in your own research.
For example until now, if you wanted to know which countries provide tax exemptions to the extractive sector, you’d have to (know to) look under Indicator 5 of our Corporate Tax Haven Index. And if you then wanted, say, data on countries’ tax losses to cross-border tax abuse – to see if there is a correlation between exemptions for extractive sectors and the scale of tax abuse – you’d have to (know to) download data from our State of Tax Justice reports. With the Data Portal, you can now just search for “tax exemption” and “tax loss” to quickly retrieve this data and download it in your preferred format.
Data as a strategic asset for change
Data is increasingly being seen as a strategic asset, sitting at the heart of our modern societies.
It lets us identify trends, patterns, outliers, anomalies and norms, and allows us to assess – objectively – where risks lie, and where we should focus our collective efforts. And while individual pieces of data are useful, they become infinitely more valuable when they are woven together into a cohesive, holistic narrative.
With ever-increasing volumes of data being collected and collated, the potential value of data as a strategic tool is growing exponentially. But with that comes a multitude of challenges: finding data, storing it, making sense of it, and using it to tell compelling accounts about the world we live in.
At the same time, the Tax Justice Network has consistently advocated for data transparency, through our work on eg country by country reporting, beneficial ownership and the automatic exchange of information between countries. We believe that our financial systems in general, and tax systems in particular, can only function properly in a climate of transparency. To truly give effect to this, data should not only be available publicly, but should be available in a format that makes it easy to digest and understand.
It is against this background that work began to develop a Tax Justice Network Data Portal.
Data transparency sits at the heart of what we do
As part of marking our 20 year anniversary, we commissioned On Think Thanks to conduct a review of our activities over the past two decades. Their findings draw attention to the impact of our role as a knowledge producer, and how using data to make compelling arguments sits at the heart of what we do. According to On Think Tanks, this has seen the Tax Justice Network acting as a catalyst for the global tax justice movement and changing narratives about tax. As a result of our commitment to evidence-based outputs and advocacy, On Think Thanks concludes that we have become a go-to resource for media outlets, development organisations and government institutions to explain, substantiate and assess arguments in the tax justice space – with many of our researchers being extensively cited in policy reports, investigative journalist work, and academic papers.
The Data Portal is an important next step in this work, making data increasingly more accessible to researchers and campaigners across the globe. Making our data more accessible is particularly important for those based in the Global South, which continues to suffer disproportionately from the impacts of abusive tax practices, and where – as the On Think Tanks review also highlights – there is still room for improvement for the Tax Justice Network to support local researchers and campaigners with evidence-based outputs.
What the Data Portal is
The Data Portal collates both source data and outputs from our existing tools and products, such as the Financial Secrecy Index, the Corporate Tax Haven Index, and the State of Tax Justice series, as well as from external data sources, like the UN, the World Bank, the IMF, and academic sources.
And while it includes data for some obvious variables (like what the beneficial ownership reporting thresholds are and who has access to beneficial ownership information), it also incorporates some more unusual data sets, like whether there is a cash limit for large transactions; whether unilateral cross-border tax rulings are available; whether civil court proceedings are open to the public; what tax exemptions are granted to farmers; to what extent financial institutions are subject to due diligence regulations, and some 400 other such variables.
Our Data Portal makes all this data available through an “online marketplace”, a bit like shopping online but for variables and datasets. Access to the Data Portal is of course free for non-commercial use by journalists, academic researchers, civil society, and the general public. For commercial use (eg risk models used by private banks), a paid subscription licence is required.
Navigation of the Data Portal is easy, allowing you to either explore by theme (eg tax havens) or by product (eg Financial Secrecy Index, the Corporate Tax Haven Index, and the State of Tax Justice series).
After signing in, simply choose the variables you would like to download, click the Download button in the top right corner, and choose the format you’d prefer (comma-separated values, Excel spreadsheets, or JSONdata). More advanced users can also use our handy code snippets for Stata, R, Python, or Java, which let you work with the data directly in your preferred statistical software.
An ongoing process
Data collection is a continuous and ongoing effort for us at the Tax Justice Network, and ever more data sets are constantly being developed, refined and analysed. So, while we are proud to launch this beta version of the Data Portal, it will continuously be refined, and updated with new features and data.
How will you use it?
We believe that data is only as valuable as the story it tells. At the Tax Justice Network, we have used this data to expose where financial secrecy is concentrated, how tax havens are proliferating, and how much tax abuse countries suffer. But we know that there are a multitude of other insights and compelling narratives that can be unearthed using this new Data Portal – we’d love to hear what you learn from it, and what you do with it!
The upcoming 27th Session of the Committee of Experts on International Cooperation in Tax Matters, hosted in Geneva, is poised to continue a crucial discussion on net wealth taxes. This United Nations body, comprising specialists from diverse countries, will examine a report that elucidates the design and implementation mechanisms of these taxes.
In this significant moment, the Tax Justice Network, in collaboration with partner organisations including ActionAid International, Financial Transparency Coalition, Oxfam, and Patriotic Millionaires, is pleased to release a joint statement. Together, we acknowledge the Committee’s dedication to formulating practical guidance on wealth taxation policies, particularly with regard to net wealth taxes.
Our statement underscores the alarming reality of widening disparities, both between nations and within them. It highlights the intersections of multifaceted inequalities spanning gender, race, religion, disability and socio-economic class, emphasising the pressing need for structural reforms. The exponential surge of concentrated private wealth, shielded from equitable taxation by opaque financial systems, requires bold and effective responses.
The joint statement advocates for the implementation of a net wealth tax as a potent tool in the fight against inequality and the promotion of social justice, aligning perfectly with the Sustainable Development Goals. The revenue generated from taxing wealth can be vital for low income countries, strengthening fiscal capacity and enabling the provision of vital public services. We extend our commendations to the Subcommittee on Wealth and Solidarity Taxes for their efforts in providing guidance on a range of wealth taxation options. We call for the approval of the subcommittee’s recommendations on wealth taxes and urge the provision of additional guidance, including the formulation of model wealth tax legislation, to establish a unified approach worldwide, thus curbing tax avoidance.
In addition, we stress the importance of expanding the international framework for the exchange of information, essential for the efficient administration of wealth taxes. Recognising that net wealth taxes primarily target the wealthiest segments of society, we propose the establishment of a global asset registry. This would ensure comprehensive transparency regarding all relevant assets, thwarting attempts to conceal wealth offshore.
This pivotal report could mark a substantial step towards global equity. We encourage nations to work together and implement comprehensive wealth taxation policies, edging us closer to a more equitable future. The journey to tax justice is ongoing, and every stride in the right direction brings us nearer to a fairer world.
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:
Naciones Unidas da un paso por la justicia fiscal y social.
La situación en México y Brasil, las dos economías más grandes de la región.
En nuestra miniserie sobre los 10 mitos fiscales, el mito número seis y el número siete: mito número 6: para crecer hay que bajar los impuestos
Y mito Número 7: Las grandes corporaciones son las que pagan más impuestos.
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
Martin Mangas investigador Universidad Nacional General Sarmiento Argentina, miembro del Espacio de Trabajo para la Equidad fiscal (ETFE), y contribuidor a “Mitos impuestos: una guía para disputar ideas de lo fiscal”
Adrian Falco Coordinador del Programa de Integración Regional de la Fundación SES de Argentina. Miembro del Espacio de Trabajo para la Equidad fiscal (ETFE), y contribuidor a “Mitos impuestos: una guía para disputar ideas de lo fiscal”
Welcome to the 70th 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 #70 من بودكاست “الجباية ببساطة” يستضيف وليد بن رحومة الباحث في العلوم السياسية ومدير منتدى البدائل العربي محمد العجاتي للحديث عن إجتماعات البنك الدولي وصندوق النقد في مراكش بالمملكة المغربية، ومدى تأثيرها في مآل عدد من القضايا الإقتصادية والإجتماعية التي تهم المنطقة العربية.
In episode #70 of the “Taxes Simply” podcast, Walid Ben Rhouma hosts social scientist and director of the Arab Forum for Alternatives, Mohammed El Agaty, where they discuss the upcoming World Bank and IMF meetings in Marrakech and their potential impact on the future of the major economic and social issues in the Arab region.
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 ce nouvel épisode de votre podcast Impôts et Justice Sociale nous explorons les enjeux du changement climatique et comment les gouvernements africains financent leur réponse face à ses répercussions. Lors de la Semaine Africaine du Climat, nous avons eu l’opportunité d’échanger avec Nassim Oulmane. Expert en économie bleue, M. Oulmane dirige actuellement la division dédiée aux Technologies, au Changement Climatique et à la gestion des ressources naturelles au sein de la Commission des Nations Unies pour l’Afrique. Ensemble, nous abordons la crise climatique en Afrique et examinons comment les ressources fiscales internes peuvent contribuer à la mobilisation des fonds nécessaires à l’adaptation et à l’atténuation de ses effets.
Invité de cet épisode :
Nassim Oulmane : Responsable par intérim de la Division Technologie, Changement Climatique et Gestion des Ressources Naturelles au sein de l’UNECA
~ Fortunes africaines: Une urgence pour les administrations fiscales #54
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]
The Tax Justice Network and Coventry University, partners in the EU 2020 Horizon TRACE project, have recently responded to a call for evidence regarding the Criminalisation of Money Laundering Directive, in which we highlighted critical loopholes and provided recommendations to improve the EU’s ability to combat money laundering effectively.
Here are our main recommendations which in our view can provide the EU with a roadmap for a more effective regulatory framework:
Harmonising taxcrime definitions
One key area of concern is the lack of harmonisation in the definitions of tax crimes among EU member states (see pages 236 onwards in this Oxford University Press Open Access Book). While tax evasion and fraud are criminal offences across the EU, there are significant disparities in how these crimes are defined and penalised. Definitional variations of tax offences serve as critical enablers of cross-border tax crime in the EU, as it frustrates investigation efforts.
We therefore recommend harmonising the definitions of tax crimes. By eliminating definitional inconsistencies, the EU can prevent dubious individuals and multinational corporations from exploiting legal loopholes to evade taxes and engage in money laundering.
Leveraging technological innovation
As technology continues to evolve, so do the techniques and tools employed by money launderers. The TRACE project has revealed that emerging technologies, such as artificial intelligence, have enabled increasingly sophisticated money laundering methods in various sectors, including art, gambling, and cryptocurrency.
To address these risks, the directive must be updated to account for the opportunities and challenges presented by technology including the use of artificial intelligence tools to track illicit financial flows more effectively.
Protecting whistle blowers
Whistle blowers play a crucial role in uncovering money laundering activities. Their actions enhance transparency and support law enforcement agencies in exposing financial crimes. While the EU has a Whistle-blower Protection Directive, this protection should extend to the directive on the criminalisation of money laundering. Incorporating whistle blowing protection provisions into this directive would highlight the vital role that whistle blowers play in the fight against money laundering and tax crimes.
Transparency of legal entities and arrangements
Identifying the individuals that ultimately control and benefit from legal entities is essential to preventing tax evasion, money laundering, corruption, and terrorism financing. To improve transparency, the EU should invest in a robust beneficial ownership framework, ensuring that information is accessible to the public.
While progress has been made in establishing beneficial ownership registries, challenges remain. Some countries have not effectively eliminated the use of bearer shares, which introduces secrecy risks. The EU should encourage member states to close these loopholes and prevent the use of bearer shares.
Enhancing public access to beneficial ownership data
Public disclosure of beneficial ownership information is crucial for preventing financial crimes. Accessible data allows civil society organisations, journalists, and authorities to hold individuals accountable for their actions. Up until October 2022, public access to such information had been gradually improving, and according to the Tax Justice Network’s assessment, laws requiring beneficial ownership to be registered with a government authority have been approved in a total of 97 jurisdictions. However, in November 2022, a ruling by the EU Court of Justice disrupted this trend by invalidating public access to beneficial ownership information for local legal entities within the EU in the context of combating money laundering. Nonetheless, as the Tax Justice Network reported in July 2023, some EU countries have chosen to maintain their public registers, a practice that should be encouraged throughout the Union.
Verification mechanisms for beneficial ownership data
Ensuring the accuracy and legitimacy of beneficial ownership information is vital. The EU should use interconnected government and public databases to verify and maintain consistent ownership data within and across member states. Implementing advanced big data analytics and automated IT systems can help detect suspicious cases and streamline the verification process (as outlined in the Tax Justice Network’s Roadmap to Effective Beneficial Ownership Transparency (REBOT) paper in greater detail).
Applying awhole of government approach to data and maximising synergies between policies
Illicit financial flows often intersect with multiple crimes and social issues. To address these challenges comprehensively, beyond the imperative of ensuring that authorities possess adequate and verified information, the EU needs legal frameworks and tools that ensure that once data is registered, it becomes accessible to all pertinent stakeholders. The absence of collaboration and a fragmented approach to tackling illicit financial activities can result in scenarios where critical information exists but remains unshared among relevant authorities, whether domestically or internationally. Applying a whole of government approach to data should also consider multiple angles, such as corruption, national security, tax abuse, and social inequalities. This is likely to facilitate more effective prosecution of money laundering offenses.
A good example is the use of data collected as part of the common reporting standard. While this has improved data sharing for tax purposes, limitations prevent broader use of this data (eg for preventing money laundering). The EU should ensure that data shared for tax purposes can also be accessed by authorities responsible for preventing, investigating, and prosecuting money laundering offenses.
Publishing common reporting standard data and other statistics
Making data publicly available and interconnected is a powerful tool in preventing financial crimes. Public access to anonymised statistics, such as those collected through the common reporting standard, can help stakeholders identify potential offences and anomalies. The EU should consider publishing common reporting standard data and other statistics to improve transparency and understanding of money laundering patterns.
An ongoing battle
The fight against money laundering is an ongoing battle that requires constant adaptation to evolving techniques and technologies. In closing these critical loopholes, the EU can strengthen its fight against money laundering, protect its financial system’s integrity, and contribute to a safer and more transparent global economy.
You’re likely reading this using technology containing minerals that once lay far below Africa’s mineral-rich soils. For the African continent is home to almost one-third of the world’s mineral reserves.
If you dig a bit deeper though, you’d find there’s some healing needed in the relationships between extracting minerals and society across the continent, and the world. Although natural resources account for almost one-third of total government revenue in some African countries, tax avoidance by mining multinational companies may cost sub-Saharan Africa as much as US$730 million per year in corporate income tax, according to the International Monetary Fund. The resulting inadequate funds means our public services – our schools, hospitals, and roads in Africa – don’t serve us as well as they could. It also hampers governments in introducing more progressive tax systems.
Government coffers are emptier than they should be, and as if this wasn’t enough, African governments are also grappling with the impacts of the climate crisis on their people. They’re coping with the fallout from flooding and droughts, sometimes within the same national borders, sometimes only months apart.
Current global carbon emissions reflect the deep inequalities in and across nations. Southern and Eastern Africa have the lowest emissions in the world. Sub-Saharan Africa could increase its per capita emissions by 20 per cent and still be in line with the agreed 1.5 degrees Celsius ceiling of the global pact for climate change, the Paris Agreement. Unfortunately, other regions have far exceeded their fair share. Scientists have issued a wake up call that we have already transgressed six of nine planetary boundaries and so we know what’s been agreed in itself isn’t enough.
Africa’s resource futures
The future of Africa’s extractive industries hangs in the balance as the demand for fossil fuels dips with international efforts to keep global warming below the 1.5 degrees Celsius. For almost half of African countries, two fossil fuels—petroleum and coal—are the most plentiful resources. African nations facing the risk of stranded assets, such as Chad, the Republic of Congo, Gabon, Mozambique, and Nigeria, may be counting on these resources for revenue and to meet domestic energy needs.
Yet new markets and greater demand for metals and minerals needed for low-carbon technologies – of which Africa has many – are promising. As Marit Kitaw, Interim Director the African Minerals Development Center (AMDC), writes
As global demand for batteries, electric vehicles, and renewable-energy equipment surges, African countries could harness their large deposits of minerals for the goal of fostering green industrialization. This would enable the continent to meet development objectives while also tackling climate change.
Marit Kitaw, September 2023, ‘Making the Most of Africa’s Strategic Green Minerals’, Project Syndicate
However, simply transitioning from fossil fuels to “green” minerals without accompanying systemic transformation to international tax rules and African industrial policy would enable ongoing corporate tax abuse and raw-material exports.
The Africa Mining Vision – adopted by all African Union members in 2009 to tackle “the paradox of great mineral wealth existing side by side with pervasive poverty” – seeks to transform mining from primarily export-driven extraction traded on markets outside the continent, to more extraction integrated into industrial policy, including domestic value addition and deliberate linkages to other sectors.
We, the writers of this article – Mukupa and Rachel – took these intersecting, complex conditions to heart and thought about how one treatment, tax, can help in the healing.
The 5 principles of tax justice include raising revenue, redistributing wealth to create a more equal society, repricing to make activities that infringe on the rights of others more costly, improving representation by reinforcing the social contract between voters and representatives, and supporting reparations to redress historical and colonial legacies.
African nations have been tackling the challenges posed by the existing international tax system for decades. For the last 60 years, decision-making on international tax has been confined to the Organisation for Economic Co-operation and Development (OECD), a membership body of the world’s richest nations, where no African nation is a member. In a historic move in 2022, Nigeria, on behalf of the Africa Group, put forward a resolution at the United Nations to start intergovernmental discussions on international taxation with a view to setting up an intergovernmental tax body within the UN. It was adopted by unanimous consensus.
The road to recovery
Last year’s UN resolution is good news for all. But OECD member states and their dependencies – responsible for almost 7 in every 10 dollars lost to corporate tax abuse – are not going to accept the necessary transformations easily, even though most of their citizens are also adversely affected by an unfair international tax system. These are the very same nations that are historically and currently most responsible for the climate crisis because of their greenhouse gas emissions.
The next months are pivotal. António Guterres, the Secretary-General of the UN, published a ground-breaking report in August 2023, which confirms much of the analysis by members of the Global Alliance of Tax Justice, setting out three options for progress on international tax within the auspices of the UN.
At the UN General Assembly last week, the moderator of the debate concluded that a consensus had emerged around the central option of the three proposed in his report: a framework convention on tax. This is the longstanding aim of tax justice campaigners. Yet the UK, the US, and the EU with its powerful members, countries most responsible for enabling much of the tax losses – and yet suffering themselves in terms of absolute losses – were conspicuously silent.
Tax justice is a deeply needed planetary salve. As Guterres wrote,
The present report comes amid increasingly urgent concerns that the international financial architecture, and with it the international tax system, have not sufficiently supported the post-pandemic economic recovery, financing of the Sustainable Development Goals and climate action.
Report of the Secretary-General ‘Promotion of inclusive and effective international tax cooperation at the United Nations’, 2023
We hope our brief here sparks further thought for the role of tax in Africa’s resource-rich nations in light of the climate crisis. Given their shared vision and common objectives with Guterres’ report, we join the call for greater collaboration between the feminist, tax justice and climate justice movements.
You can download the brief The Principles of Tax Justice and the Climate Crisis in Africa’s Resource-Rich Nationshere.
Poluição por combustíveis fósseis; contaminação do solo, rios, animais e vida humana por agrotóxicos. Tabaco, bebidas alcoólicas e ultraprocessados que prejudicam a saúde. A tributação pode colaborar para desincentivar estas e outras práticas nocivas.
O episódio #53 do É da Sua Conta explica como funciona a reprecificação com o imposto seletivo, ferramenta que, se bem desenhada, pode diminuir o efeito da crise climática, melhorar a saúde das pessoas e combater desigualdades. Grandes corporações, que contaminam mais, devem contribuir mais!
Reprecificação: Florencia Lorenzo, da Tax Justice Network, explica como a reprecificação, um dos 5 “Rs” da justiça fiscal pode contribuir no combate à crise climática, na promoção de uma alimentação mais saudável e no desincentivo de outras práticas que fazem mal à saúde e ao meio ambiente.
Bob Michel da Tax Justice Network traz evidências científicas de que imposto seletivo desincentiva práticas nocivas, como o tabagismo, na Europa.
Reforma tributária no Brasil deve ser sustentável e prever transição para economia menos poluente através de impostos seletivos para combustíveis fósseis e agrotóxicos, comenta Mateus Fernandes, do Instituto Democracia e Sustentabilidade.
Imposto seletivo para bebidas alcoólicas e ultraprocessados devem constar da reforma tributária brasileira. A proposta é da ACT Promoção da Saúde e Marcello Baird acredita que o projeto de lei que tramita no congresso nacional pode estar entre os pioneiros no mundo se for aprovado com estas medidas.
“Trata-se de tentar mudar o comportamento de grandes empresas, de grandes fundos de investimentos, para reorientar a economia para que quando façam suas decisões econômicas, levem em conta também o custo social dessa decisão de investimento.” ~ Florencia Lorenzo, Tax Justice Network
“Nos países europeus, a introdução do imposto seletivo sobre o consumo de cigarro onde esse tipo de imposto era uma novidade reduziu nitidamente o número de fumantes.” ~ Bob Michel, Tax Justice Network
“Qual é a nova revolução verde que a gente precisa fazer? Vai continuar sendo baseada em agrotóxicos, que recebem algo em torno de R$ 350 bilhões de incentivos por ano?” ~ Mateus Fernandes, Instituto Democracia e Sustentabilidade
“Imposto seletivo é uma medida super importante para desestimular o consumo de ultraprocessados. Há inúmeros dados que mostram como esses produtos são prejudiciais à saúde das pessoas, causando mortes e adoecimentos” ~ Marcello Baird, ACT Promoção da Saúde
Participantes:
Antonia, agricultora ribeirinha brejeira no Sul do Piauí
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