Industrialized Countries Accused of Blocking Developing Countries from International Tax Effort

The U.S., Japan and Europe are being accused of blocking developing countries from participating in efforts to combat international tax evasion.

Policymakers have been gathered this week in Addis Ababa, Ethiopia for the 3rd Financing for Development Conference, where discussions have been underway about ways to combat corporate tax evasion. At the conference, the United Nations Development Program and the Organization for Economic Cooperation and Development announced their plans to launch a global initiative called Tax Inspectors Without Borders to help developing countries bolster their domestic revenues by strengthening their tax audit capacities (see UN and OECD Launch Tax Inspectors Without Borders).

However, advocacy groups for the developing countries are accusing the U.S., Japan and European nations of preventing them from creating a more representative global tax body to combat international tax dodging and illicit financial flows and saying the move is threatening to derail the entire summit. They are complaining about the dominance of the OECD, which has traditionally been run by industrialized countries and until its recent initiative on base erosion and profit shifting, or BEPS, had mostly steered clear of cracking down on tax havens.

“Governments have a chance this week to create an equitable body to tackle the problems of tax dodging and corporate opacity,” said Pooja Rangaprasad of the Financial Transparency Coalition in a statement. “But if the status quo remains, and standards continue to be set by the Organization for Economic Cooperation and Development (OECD), we will be stuck with an unjust system that can’t solve the problem of illicit financial flows. The rest of the world will remain on the outside looking in.”

The OECD currently sets new standards in multinational profit shifting and cross-border tax dodging. However, the advocacy groups point out that the OECD is made up of just 34 comparatively wealthy countries. At the FfD Conference, government representatives have a chance to create an intergovernmental tax body under the United Nations that would include more than 100 developing countries that are currently excluded from the decision-making process, according to the groups, who have united under the umbrella of the Financial Transparency Coalition.

“African nations are at the epicenter of the crisis of illicit financial flows, yet they are not even in the room when decisions are being made,” said Alvin Mosioma, executive director of the Tax Justice Network Africa, in a statement. “A global tax body is one important step in fixing this global problem.”

The FfD Conference is the only global platform for countries to decide on how to finance development effectively, the coalition contends, and a failure in Addis Ababa could threaten other goals such as climate change talks and sustainable development goals that will be decided later this year.

“It makes absolutely no sense that rich country governments are ready to jeopardize the global tax system, as well as the post-2015 and climate negotiations, just to make sure that poor countries continue to be excluded from the decision making on global tax standards,” said Tove Maria Ryding, tax justice coordinator at the European Network on Debt and Development, in a statement.

The rising level of illicit financial flows directly affects how much governments are able to fund the drivers of development, like education, infrastructure and health, the coalition argues.

“The poorest of people bear the brunt of this problem, yet the solutions are only made by the Paris-based OECD,” said Joel Akhator Odigie of the African Regional Organization of the International Trade Union Confederation.

“Governments from across Latin America are united in calling for a political body on tax,” said Jorge Coranado, president of the Latin American Network on Debt Development and Rights, in a statement. “This call isn’t new, but now only a few blockers remain. We have been told it’s ‘time for global action’, we can’t afford to fail.”

World leaders eventually reached a far-reaching agreement at the United Nations conference on a series of measures to overhaul global finance practices and generate investments for tackling a range of economic, social and environmental challenges.

The groundbreaking agreement, the Addis Ababa Action Agenda, provides a foundation for implementing the global sustainable development agenda that world leaders are expected to adopt this September. The agreement was reached by the 193 UN member states attending the conference, following negotiations under the leadership of Ethiopian Foreign Minister Tedros Adhanom Ghebreyesus. The agreement, adopted after months of negotiations between countries, aims to forge a global partnership to foster universal, inclusive economic prosperity and improve people’s well-being while protecting the environment.

“This agreement is a critical step forward in building a sustainable future for all,” said UN Secretary-General Ban Ki-moon in a statement. “It provides a global framework for financing sustainable development. The results here in Addis Ababa give us the foundation of a revitalized global partnership for sustainable development that will leave no one behind.”

The agreement covers a wide range of issues, including sustainability, foreign aid, social protection and health, among other items. In the area of taxation, the agenda calls for strengthening support for the work of the UN Committee of Experts on International Cooperation in Tax Matters to improve its effectiveness and operational capacity, and the engagement with the Economic and Social Council. It emphasizes the importance of inclusive cooperation and dialogue among national tax authorities.

The agreement focuses on significantly curbing corruption and tax evasion by 2030. The UN member states negotiated a deal Wednesday after three days of marathon meetings to approve the text of the agreement, which is expected to be formally adopted on Thursday in a vote at the UN Economic Commission for Africa.‎

“The final negotiations were challenging,” said Eric LeCompte, who participated in the summit as the executive director of the religious development group Jubilee USA Network. “But now we have an agreement and we need to keep working together because people’s lives hang in the balance.”