A group of heads of state from around the world are today launching a blueprint for a UN tax convention and a new intergovernmental tax body under the UN to radically tackle rampant global tax abuse, which is currently estimated to cost countries over $427 billion in lost revenues to tax havens every year.1 The report, from a high-level UN panel, provides a comprehensive set of recommendations that reflect in full the policy platform created by the Tax Justice Network since its formal establishment in 2003.2 The panel identifies tax abuse and other illicit financial flows as a systemic problem that “robs billions of a better future” and that can only be addressed by “nothing less than a transformation of the global financial system” led at the United Nations.
The Tax Justice Network chief executive Alex Cobham lauded the historic UN proposal, saying “This is a tide-turning moment in the fight against international tax abuse. The recommendations of the tax justice movement have been comprehensively adopted as the policy package needed, and the heat is now on to move rule-making out of the hands of a few rich countries at the OECD3 and to a globally inclusive forum at the UN.”
The seminal blueprint was prepared by the UN High-Level Panel on International Financial Accountability, Transparency and Integrity, which launched in March 2020 to study the impact of tax abuse, money laundering and illicit financial flows on the ability of states to meet the UN’s Sustainable Development Goals by 2030.4 The findings of the high-level panel’s report will be presented5 to UN member states today by current and former heads of state from a number of countries, including Lithuania, Niger, Norway and Pakistan, signalling the strongest levels of global support to date for efforts to bring international taxation under the mandate of the UN. By stopping public funds from “vanishing into the offshore maze”, the high-level UN panel’s blueprint is expected to radically improve governments’ abilities to fulfil their human right obligations, to address domestic and global inequalities, including gender disparities exacerbated by tax abuse, and pursue sustainable development.
Political will to revamp the global tax system reach new heights last year when US President Joe Biden made the task a key element of his foreign policy. In an article for Foreign Affairs, then-candidate Biden committed to “lead efforts internationally to bring transparency to the global financial system, go after illicit tax havens, seize stolen assets, and make it more difficult for leaders who steal from their people to hide behind anonymous front companies.”6
Polling data published last summer from seven leading countries – USA, France, Germany, Italy, Poland, the Netherlands and the UK – showed overwhelming support from the public, ranging from 87 per cent to 95 per cent, for governments to crackdown on corporations using tax havens.7
UN high-level panel delivers scathing criticism of OECD’s global tax architecture
The high-level UN panel’s report draws scathing conclusions on the current patchwork of international tax rules and structures that have been largely set by the OECD, a membership organisation made up of high-income countries, and the G20. The report states that the current global architecture is “fragmented and inadequate” and “presents, at a minimum, challenges of coordination, burdens government capacities, and raises questions of legitimacy.” Penning the report’s foreword, the former Prime Minister of Nigeria Mr. Ibrahim Mayaki and former President of Lithuania Ms. Dalia Grybauskaite state that “gaps, loopholes and shortcomings in rules, and their implementation, allow tax abuses, corruption, and money laundering to flourish. These illicit financial flows represent a double theft: an expropriate of funds that also robs billions of a better future.”
The high-level UN panel sets out 14 recommendations in its ambitious blueprint to “free the global economy from illicit financial practices”, most monumental of which are the adoption of a UN tax convention8 and establishment of an intergovernmental body on tax matters under the UN. The panel states these actions would allow international tax standards to be established through an open and inclusive legal instrument with universal participation. In practice, these two actions would shift the power to set global tax rules away from the OECD, which has held the seat of power on global tax for 60 years, to the United Nations This would then make it possible to push forward the policy package laid out in the rest of the recommendations made by the high-level UN panel, and which reflects in full the policy platform long advocated for by the global tax justice movement.
Calls to shift tax rule-setting to the UN gained unprecedented momentum last year after the OECD received wide criticism for its failure to deliver meaningful change in its long-awaited tax reform proposals. The OECD came under fire in October 2020 when it sidestepped tax reform plans prepared and negotiated in consultation with countries from around the world, including with non-OECD countries, in favour of a more limited tax reform proposal privately negotiated by the US and France behind closed doors and abruptly announced in 2020.
The tax reform proposals were harshly criticised by leading economists, including by recipient of the Noble Prize in Economics Joseph Stiglitz who said: “The proposals at the OECD are simply not adequate, they really represent the capture of this agenda by the multinational corporations and the countries that are closely allied with those multinational corporations.”9 The Tax Justice Network criticised the OECD reform proposal as a “tax haven lite” plan.10
Beyond the OECD’s inability to deliver meaningful tax reforms, the legitimacy of OECD member countries to set global tax rules has also been questioned by tax justice campaigners. Numerous studies have found OECD countries to be among the greatest enablers of global tax abuse. Seven out of the top ten ranking jurisdictions on the Tax Justice Network’s Financial Secrecy Index 2020, a global ranking of countries most complicit in helping individuals to hide their finances from the rule of law ranking, are OECD countries or dependencies of an OECD country.11 And the top seven ranking jurisdictions on the Tax Justice Network’s Corporate Tax Haven Index 2019, a global ranking of countries most complicit in helping multinational corporations pay less tax than they are expected to, are OECD countries or dependencies of an OECD country.12
In contrast to the OECD’s limited tax reform proposal, the policy package that the high-level UN panel has prepared for countries to adopt at a UN forum in the future charts a path for root-to-branch transformation of global tax rules, comprehensively backing the policy platform initiated by the Tax Justice Network in 2003. Key recommendations include13:
- Universal implementation of automatic exchange of information for tax purposes among all countries by ending asymmetries in sharing. This would most significantly address the US’s refusal to reciprocally share information with other countries.
- Require all countries to establish beneficial ownership registers to hold information on all legal vehicles. Just over 80 countries have to date established beneficial ownership registers but even these registers do not cover all legal vehicles, leaving room for beneficial owners to avoid detection.
- Require all multinational corporations to publish their country by country reports, a transparency accounting standard designed to expose profit shifting. In comparison, the OECD has only required to multinationals to disclose their country by country reports privately to tax authorities, enabling multinationals to continue to escape accountability.
- Shift from the century-old “arms-length principle” for taxing multinational corporations to the unitary tax approach. By taxing a multinational corporation as a group of all its subsidiaries, rather than taxing each subsidiary separately, unitary tax in one swoop makes the majority of profit shifting techniques used by multinationals corporations to abuse tax redundant.
- Establish a global minimum corporate tax rate. This would put much needed brakes the race to the bottom on corporate tax among state legislatures captured by global finance.
UN blueprint is “a tide-turning moment in the fight against global tax abuse”
Alex Cobham, chief executive at the Tax Justice Network, said:
“A global tax system that loses over $427 billion a year is not a broken system, it’s a system programmed to fail.14 Our tax systems are our most powerful tools for creating a just society that gives equal weight to the needs of all members of society. But under pressure from corporate giants and powerful tax havens like the Netherlands and the UK, the OECD has programmed the global tax system to prioritise the desires of the wealthiest corporations and individuals over the needs of everybody else. The resulting human cost we pay for that has been made painfully clear by the pandemic. Now more than ever we must reprogramme our global tax system to prioritise people’s health and livelihoods over the desires of those bent on not paying tax.
“This is a tide-turning moment in the fight against international tax abuse. The recommendations of the tax justice movement have been comprehensively adopted as the policy package needed, and the heat is now on to move rule-making out of the hands of a few rich countries at the OECD and to a globally inclusive forum at the UN. The launch of this UN blueprint gives us a century-defining shot to put an end to the plague of illicit finance – and empower countries to raise the revenues they need to deliver on the promise of human rights for all.”
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Notes to editor
- The Tax Justice Network’s State of Tax Justice 2020 reported in November 2020 that countries around the world are losing over $427 billion in tax each year to international corporate tax abuse and private tax evasion, costing countries altogether the equivalent of nearly 34 million nurses’ annual salaries every year – or one nurse’s annual salary every second. Of the $427 billion lost in tax, $245 billion is directly lost to cross-border corporate tax abuse by multinational corporations and $182 billion to private tax evasion. Multinational corporations paid $182 billion less in tax than they should have by shifting $1.38 trillion worth of profit out of the countries where they were generated and into tax havens, where corporate tax rates are extremely low or non-existent. Private tax evaders paid less tax than they should have by storing a total of over $10 trillion in financial assets offshore.
- The Tax Justice Network’s policy platform is available on this interactive webpage.
- The Organisation for Economic Cooperation and Development (OECD) is an international membership organisation with 37 member countries. OECD members are high income countries and are generally regarded as “developed countries”. The OECD was founded in 1961 with the aim of promoting policies on tax, trade and welfare among its members and the rest of the world. Since its founding, the OECD has been the world’s leading publisher of rules, conventions and guides on international tax, including on how countries tax multinational corporations’ profits. Current OECD members are: Austria, Australia, Belgium, Canada, Chile, Colombia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.
- More information about the high-level UN FACTI panel is available here.
- For the full event programme and speaker list, visit the UN FACTI report launch event page here..
- US President Joe Biden’s article for Foreign Affairs outlining his foreign policy agenda is available here.
- The polling was commissioned by More in Common as part of a report on public attitudes on Covid-19. More information on the polling is available here.
- A UN convention, like the Convention of the Rights of the Child and the Convention against Torture, is an agreement adopted by the UN General Assembly that creates international norms and standards. A UN member state can sign onto the convention when the UN General Assembly adopts it to indicate support for the principles of the convention. The convention only becomes legally binding to the UN member state once the member state then ratifies the convention. A UN tax convention would make it possible to establish the policy package laid out in the rest of the recommendations made by the high-level UN panel as international standards.
- See Joseph Stiglitz response to the OECD’s tax reform proposal, along with comments from other leading economists, here.
- See the Tax Justice Network’s response to, and analysis of, the OECD’s tax reform proposal here.
- The Financial Secrecy Index ranks countries by their complicity in helping wealthy individuals hide their money from the rule of law. The top ten jurisdictions ranking on the Financial Secrecy Index 2020 are: 1. Cayman (British Overseas Territory), 2. USA, 3. Switzerland, 4. Hong Kong, 5. Singapore, 6. Luxembourg, 7. Japan, 8. Netherlands, 9. British Virgin Islands (British Overseas Territory), 10. United Arab Emirates.
- The Corporate Tax Haven Index ranks countries by their complicity in helping multinational corporates pay less tax than they are expected to. The top ten ranking jurisdictions on the Corporate Tax Haven Index 2019 are: 1. British Virgin Islands (British territory), 2. Bermuda (British territory), 3. Cayman Islands (British territory), 4. Netherlands, 5. Switzerland, 6. Luxembourg, 7. Jersey (British dependency), 8. Singapore, 9. Bahamas, 10. Hong Kong. The 2021 edition of the Corporate Tax Haven Index will be published in March 2021.
- A full summary of key recommendations from the UN FACTI report and comparison against the Tax Justice Network’s policy platform is available here. To access the document, enter password: FACTI#TJN
- See note 1.