G7 countries are costing the world over $115 billion in lost tax a year by enabling multinational corporations and wealthy individuals from around the world to abuse tax1, the Tax Justice Network has reported in a statement praising the African Union for endorsing the biggest shake-up in international tax rules in 60 years.
The shakeup would go far beyond any measures discussed by G7 finance ministers this week to fix the broken global tax system which loses over $483 billion a year to tax havens2 and would move rulemaking on international tax out of the hands of the few rich countries who have determined international tax rules for decades and to the UN.
The finance ministers of the African Union, representing around one in six of the world’s population and over a quarter of the membership of the United Nations, have called on the UN to start negotiations on a convention to address comprehensively the threat of cross-border tax abuse, including by wealthy individuals and multinational companies.
The statement3, the first of its kind, reflects a pattern of continuing African leadership on the question of international tax abuse. The report of the AU/ECA High Level Panel on Illicit Financial Flows4 out of Africa was pivotal in generating the political momentum for the first globally agreed target to curb illicit flows, including corporate tax abuse, as part of the UN Sustainable Development Goals which run from 2015 to 2030.
In the resolution, agreed on 17 May 2022, the African Union and Economic Commission for Africa’s Conference of African Ministers of Finance, Planning and Economic Development:5
“Calls upon the United Nations to begin negotiations under its auspices on an international convention on tax matters, with the participation of all States members and relevant stakeholders, aimed at eliminating base erosion, profit shifting, tax evasion, including of capital gains tax, and other tax abuses.”
Existing proposals for a UN tax convention6 have emphasised two main elements. First, the convention would allow the globally inclusive setting of standards on transparency and cooperation. This responds to the exclusion of most lower-income countries from the benefits of information exchange. In addition, the United States has refused to participate in exchange of information on financial accounts despite demanding it from all others – which has seen the US rise to the top of the Financial Secrecy Index 2022, just launched.
The second element of the convention would be the longstanding call of the G77 group of countries, to create a globally inclusive intergovernmental body to set international tax rules. This reflects different frustrations with the way the OECD has handled its G20 mandate on corporate tax over the last decade. Many participants including OECD members note that the process is years over schedule, and that the remaining proposals fall far short of the original ambition. Non-members of the OECD, meanwhile, have repeatedly highlighted their exclusion from decision-making.
Negotiation of a tax convention – which could also be a UN framework convention, with similar features to the UNFCCC on the climate crisis – would offer a profound shift in the international tax architecture.
Earlier this week, five G7 countries – the US, UK, Germany, Italy and Japan – were singled out by the Financial Secrecy Index 2022 for undermining global progress of financial secrecy. The index, which is a ranking of the world’s biggest suppliers of financial secrecy, reported that the supply of financial secrecy services, like those utilised by Russian oligarchs, tax evaders and corrupt politicians, decreased globally due to transparency reforms. But five G7 countries alone – the US, UK, Japan, Germany and Italy – were responsible for cutting global progress against financial secrecy by more than half. Three G7 countries ranked among the top 10, with the US in 1st, Japan in 6th and Germany in 7th.7
Tax Justice Network chief executive Alex Cobham said:
“The current international tax architecture is a disaster. It gives rise directly to needless inequalities between countries and within countries, denying everyone the chance for better lives. The estimated revenue loss of $483 billion a year worldwide takes a huge chunk out of government spending on key priorities including health and recovery from the pandemic. The G7 countries meeting this week are responsible for facilitating nearly a quarter of this loss – $115 billion a year.”
“Lower income countries lose by far the largest share of their current tax revenues to cross-border tax abuse – the equivalent of nearly half their public health budgets.7 But lower income are also excluded from international cooperation and rule-setting. The failure of high-income countries to address cross-border tax abuse also denies their own citizens the chance of fair, progressive taxes on income, profits and wealth.
“This powerful joint call from African finance ministers brings the world a step closer to the international tax reforms that are desperately needed. It is crucial now that policymakers in other regions make their views clear, and that the United Nations accepts this mandate and begins negotiations urgently.
“The G7 finance ministers should use their meeting today to join the African Union’s call, and to pledge to support the United Nations to start these negotiations.”
Notes to editor
- The estimated revenue losses caused by the G7 countries are drawn from the State of Tax Justice 2021 report, published by the Tax Justice Network with the Global Alliance for Tax Justice, Public Services International and FES. The report finds that the world loses $483 billion in tax a year to global tax abuse committed by multinational corporations and wealthy individuals.
- Global tax loss estimate is from the State of Tax Justice 2021. See note 1 above.
- The communique results from the AU-ECA Conference of African Ministers of Finance, Planning and Economic Development, at the 54th session of the Economic Commission for Africa. The statement endorses the resolutions agreed by the member states’ Committee of Experts, which states: “The Conference of Ministers: […] Calls upon the United Nations to begin negotiations under its auspices on an international convention on tax matters, with the participation of all States members and relevant stakeholders, aimed at eliminating base erosion, profit shifting, tax evasion, including of capital gains tax, and other tax abuses.” See 28-29.
- Read the report of the AU/ECA High Level Panel on Illicit Financial Flows here.
- See note 3.
- Momentum to move rulemaking on global tax and finance from the OECD, where it has sat for six decades, to the UN passed a tipping point in 2021 after the UN high level panel for Financial Accountability, Transparency and Integrity (FACTI) called for the establishing of a UN tax convention. A call to develop a UN Tax Convention was first put forward by the Africa Group at the United Nations in 2019. The UN Secretary-General’s initiative in 2020 to explore responses to the Covid-19 pandemic identified a UN tax convention among the options for heads of state. The World Economic Forum in 2021 published a white paper identifying the UN tax convention among key policy pathways for an ambitious economic recovery post-pandemic. Also in 2021, the South Centre – the intergovernmental organisation of lower-income countries – published a briefing detailing a proposal for a framework UN convention on tax. The momentum has been propelled by the Tax Justice Network’s research showing OECD countries setting global tax rules to be most responsible for enabling global tax abuse by multinational corporations and wealthy individuals. The Tax Justice Network’s State of Tax Justice 2021 found OECD members to be responsible for facilitating 78 per cent of the $483 billion in tax countries suffer a year to global tax abuse. This amounts to the facilitating the handing over of $378 billion a year from public purses around the world to the wealthiest multinational corporations and individuals.
- The Financial Secrecy Index 2022 observed a 2 per cent reduction in total financial secrecy around the world over the last edition of the index published in 2020. However, when excluding the increases in financial secrecy from the US, UK, Germany, Japan and Italy, the Financial Secrecy Index 2022 finds that global financial secrecy actually shrunk by 5 per cent. The five G7 countries collectively increased their supplies of financial secrecy by enough to minimise the 5 per cent global reduction in financial secrecy down to 2 per cent – effectively leaving Russian oligarchs as well as tax evaders, money launderers and corrupt politicians around the world more room to manoeuvre and hide their assets. Read about the Financial Secrecy Index 2022 here.