Ministers set up conflict with European Parliament, public demand for action against tax abuse
Just a week after countries of the world met in New York to confirm their support for UN global talks on international tax cooperation, finance ministers of the European Union have signalled their intention to oppose any substantive progress.1 Rather than support negotiations on a UN tax convention to claw back countries’ astronomic losses to tax havens, the EU finance ministers have recommended that “the EU and its Member States could consider option 3 [from the UN Secretary-General’s recent report], i.e. working at the UN on a non-binding multilateral agenda.”
EU finance ministers’ suggestion of support for the weakest of the three options for global tax reforms put forward by the UN Secretary General2 directly clashes with the European Parliament’s call3 earlier this year on EU countries to support a binding UN tax convention – the core proposal of the other two options from the UN Secretary General’s report.
Tax experts argue a UN tax convention is urgently needed to prevent countries from losing nearly US$5 trillion to tax havens over the next decade – the equivalent of losing a year of worldwide spending on public health.4 A UN tax convention would create the first ever, globally inclusive, democratic process to set tax rules and standards, with the potential to recover much of the US$480 billion a year in estimated tax revenue losses that countries suffer due to cross-border tax abuse.5
Alex Cobham, chief executive of the Tax Justice Network, said:
“It is shameful that finance ministers from the EU – who preside over tax systems that lose over $130 billion to cross-border tax abuse every year, whose citizens consistently call for them to take action, and who have sat on their hands while the OECD has failed to deliver any kind of headway – are now trying to stifle the best chance for global progress at the UN. All EU states are part of the unanimous consensus achieved on this matter at the UN last year, so it is vital that the EU public now hear from their governments if their position has shifted.” (Full quote below.)
The European Parliament called on the European Union in a resolution passed in June this year to support a UN tax convention to tackle rampant global tax abuse, which sees EU countries lose over US$130 billion a year to tax havens. EU countries are among the world’s biggest losers to tax havens, accounting for more than a quarter of global tax losses.6 Polls from recent years in leading economies, including France, Germany, Italy, Poland and the Netherlands, have all shown overwhelming public support for government action to curb global tax abuse.7
That broad EU public and parliamentarian support for action follows a failed process of tax reform led by the OECD. Despite being scheduled to conclude in 2020, the OECD has not yet finalised proposals – but research already shows that the original ambition has been largely lost. 8
The first part of the OECD proposal was supposed to go ‘beyond the arm’s length principle’, and introduce a unitary approach that would ensure profits were taxed in the places that multinationals actually carry out their economic activity. This has been watered down in two major ways. First, instead of applying to all profits, it would only apply to a small part of the profits of only a small number of multinationals. Second, the entire OECD proposal has been made conditional on the agreement of the United States – which it is known will be blocked by the US Congress. The other part of the OECD proposal is for a global minimum tax, but research shows that the latest version will deliver significant additional revenues only for corporate tax havens – while doing nothing to stop profit shifting.9
Perhaps worse than the loss of ambition from the OECD process, is that it has effectively stalled any national action for a period of five years. Initiated in 2019 and scheduled to conclude in 2020, the process has staggered on even as the proposals have become increasingly complex and weak.
But the statement of EU finance ministers signals that they intend to oppose an ambitious UN process, in the Secretary-General’s option 1 or option 2, precisely because these “would risk leading to duplicate ongoing or completed international work linked to the existing global tax framework… This would be time consuming for all jurisdictions.”
There is no question that the OECD process has consumed a huge amount of time and resource, while tax abuse has continued unstintingly.10 A central point made in the UN General Assembly debate in September was that a UN process would not duplicate the OECD one, because the UN process would be globally inclusive. And in addition, unless there is a further, major setback at the OECD, their proposals will be finalised within the next year – while UN negotiations would not conclude until some time after that.
The three options identified by the Secretary-General are these. Both “Option 1” and “Option 2” call for a legally binding UN tax convention, where the first option seeks a narrow scope for the convention and the second seeks a full scope. “Option 2” would see a framework convention on tax established, similar to that for climate (the UNFCCC), which has the potential to include individual binding protocols on key issues, and also to create a body with the power to negotiate future tax rules in a transparent, democratic and globally inclusive setting. The narrower “Option 1” allows for a binding convention, similar to the UN Convention Against Corruption for example, but without the creation of a global negotiating body. “Option 3” envisages only the creation of a framework for discussions of international tax cooperation, with no ability to negotiate binding decisions or deliver policy progress.
A UN General Assembly debate held last month on the UN Secretary General’s three options saw a degree of early consensus emerge in favour of “Option 2”, a full scope UN tax convention.11 A new UN General Assembly resolution is being discussed in the Economic and Financial Committee, and is expected to be brought to a vote in November this year, and this would formally begin negotiations. Next week, the text of a draft resolution is expected to be published, after being put forward by the Africa Group which has consistently led progress.
The type of instrument to be agreed (whether a framework convention or some other instrument) would typically be part of the negotiations, rather than decided in advance. In this context, even the stance of the EU finance ministers confirms their support for entering negotiations, albeit with a preference for a more limited outcome. Other countries, of course, have indicated a strong preference for a broader outcome, and that would form part of the agenda for negotiations.
The divisive position set out by EU finance ministers is based on a claim that a new UN tax leadership role would risk “duplicating” the work of the OECD. This argument, repeatedly made by some OECD members, has been refuted by the European Parliament, the UN Secretary General’s report, the G77 group of developing countries which has long sought a global tax body and by over 250 civil society organisations including the Global Alliance for Tax Justice – all of whom assert that a UN tax convention would introduce for the first time globally inclusive international tax cooperation, a need that the OECD has failed to meet.12
In unusually harsh criticisms, the UN Secretary General stated in his report that there is “significant evidence that the substantive guidance produced through these processes [the OECD’s Inclusive Framework]… often is not implemented by developing countries because it is not seen by them as responding to their more immediate needs and priorities (rather, it draws resources away from such issues) and/or is not capable of being implemented by them. Thus, the substantive aspect of inclusive and effective international tax cooperation does not appear to be adequately met.”13 Moreover, a recent report by the Tax Justice Network concludes that the OECD’s now 10-year long process to curb the revenues lost to global tax abuses has had effectively no impact.14
Alex Cobham, chief executive at the Tax Justice Network, said:
“It is shameful that finance ministers from the EU – who preside over tax systems that lose over $130 billion to cross-border tax abuse every year, whose citizens consistently call for them to take action, and who have sat on their hands while the OECD has failed to deliver any kind of headway – are now trying to stifle the best chance for global progress at the UN.
“All EU states are part of the unanimous consensus achieved on this matter at the UN last year, so it is vital that the EU public now hear from their governments if their position has shifted. To its discredit, the OECD has repeatedly attacked the UN’s competence in this area, and lobbied finance ministries to oppose progress. But EU foreign ministries, and their governments in general, may well be less easily swayed given that the OECD has, after all, failed to deliver any significant reduction in tax abuse. Faced with powerful public demands for action, and the diplomatic imperative of the global consensus to move forward at the UN, it is time for EU member states to commit themselves to negotiating the best deal possible.
“The Africa Group is expected to continue their vital leadership by tabling a resolution to begin formal negotiations on a UN tax convention next week. There is a window of opportunity now for EU citizens and the European Parliament to demand once again that their governments engage fully in this process, in good faith – instead of hiding behind a failed OECD process and seeking to block progress towards effective, globally inclusive action against tax abuse.”
Notes to editor
- General Secretariat of the European Council, 3 October 2023, ‘Position on behalf of the European Union and its Member States on tax cooperation at the United Nations: Submitted jointly by the Presidency of the Council of the EU and the Commission’, available here.
- Read more about the UN Secretary General’s proposals here.
- Read more about the EU Parliament’s resolution calling on EU members to support negotiations for a UN tax convention here.
- Read the Tax Justice Network’s State of Tax Justice 2023 report here.
- See note 4.
- See note 4.
- Read more about the polling here.
- See briefings from the South Centre on Pillar 1 of the OECD proposals here, and on Pillar 2 here. For the latest independent revenue estimates on Pillar 2, see here. IMF research on the revenue returns to the OECD proposals can be found here (see Figure 1 and Figure 5 on Pillar 1 and broader revenue impact), and here(a comparison of Pillar 1 with digital sales taxes for Asian countries). Research by the BEPS Monitoring Group, published earlier this summer, found the OECD’s proposals to be “fundamentally flawed”. A study by the South Centre and the Coalition for Dialogue with similar conclusions can be found here. A EU Tax Observatory report, which finds lower income countries would lose tax revenue under OECD proposals, can be found here.
- More information on how the global minimum tax rate has been contorted into a “rewards programme” for the biggest tax havens is available here.
- Read our primer on why the world needs leadership on global tax to be moved from the OECD to the UN here.
- Read about consensus emerging at last month’s UN General Assembly debate here.
- See the EU Parliament’s resolution on the matter; the UN Secretary General’s report; the G77 countries’ many statements; and a public letter signed by 250 civil society organisations.
- See paragraph 49 of the UN Secretary General’s report.
- See note 4.