International Tax Cooperation: Perspectives from the Global South
About the Book:
A substantive reform of the global tax system involving a variety of multilateral platforms is underway. The question is not whether the tax standards and practices will change, but in which direction.
Developing countries have long sought changes in rules, standards and procedures shaping the allocation of taxing rights among sovereign states. In the wake of the 2008-2010 Great Recession, developed country governments engaged in massive public sector layoffs and channeling enormous public resources to bail out large financial companies and their wealthy investors. The Panama Papers, the Paradise Papers, the Lux Leaks became household words in the United States and Europe because of the journalistic coverage. Other scandals, such as the “cum/ex” fraud in Germany involving a loophole in the taxing of dividend receipts were less known but just as materially significant. Tax reform, particularly as it applied to the treatment of corporations working in multiple tax jurisdictions, thus became not only a problem of developing countries but an issue of global concern.
Addressing Developing Countries’ Tax Challenges of the Digitalization of the Economy
By Monica Victor
This Policy Brief sheds light on some of the implications for developing countries concerning the new international taxation global governance structure and the ongoing corporate tax reform process under the Organisation for Economic Co-operation and Development and the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) Project umbrella in the context of the digitalization of the economy. The objective is to inform developing country tax authorities on the issues that may require further South-South cooperation and action to protect taxing rights that are of vital importance for the achievement of the Sustainable Development Goals. Firstly, the new international collaborative mechanisms created after the BEPS Project – the Platform for Collaboration on Tax and the Inclusive Framework on BEPS – are described. Secondly, the international tax reform proposals under negotiations in the Inclusive Framework on BEPS are outlined. The final remarks will address the challenges for developing countries to participate in the ongoing international tax reform effectively.
Comments on the OECD Secretariat Proposal for a “Unified Approach” under Pillar One
The South Centre Tax Initiative (SCTI), the South Centre’s flagship program for promoting cooperation among developing countries on international tax matters, submitted its comments in November 2019 to the OECD Secretariat’s Proposal for a “Unified Approach” under Pillar One. This proposal is the key solution proposed by the OECD to address the challenge of taxation in the digital economy. In today’s world, it is a common occurrence that large multinational enterprises pay little or no taxes on their global profits by exploiting gaps in international tax rules. Approximately $500 billion is estimated to be lost globally due to corporate tax avoidance each year. This number is five times the annual requirement for funding the Paris Agreement ($100 billion) and around 20% of the funding requirement for achieving the Sustainable Development Goals in developing countries ($2.5 trillion). Hence, revenue lost to corporate tax avoidance could go a long way in financing sustainable development and actions regarding climate change.
South Centre Statement to the United Nations High Level Dialogue on Financing for Development
Four years after its adoption, Agenda 2030, “Transforming Our World,” the United Nations’ (UN) most recent and most ambitious development agenda, is off-track. Various estimates of the spending needed to achieve the Sustainable Development Goals (SDGs) range from $1 to $3 trillion. Domestically mobilized resources are critical to achieve these goals. A main source of the inadequate scale of public revenues are shortfalls in corporate tax collection, which are largely explained by international corporations hosted by or doing businesses in developing countries that take advantage of facilities offered by the international tax standards and practices to avoid full payment of taxes in those countries. A substantive global reform process involving a variety of multilateral platforms is underway. The question is not whether the system of global tax standards and practices will change, but in what direction it will change. Drawing lessons from the developing country context will be critical if the ongoing process of global tax reform will benefit developing countries and achieve substantial success in generating the income needed to effectively attain the SDGs.
Gender, Tax Reform and Taxation Cooperation Issues: Navigating Equity and Efficiency under Policy Constraints
By Dr. Mariama Williams
This policy brief has sought to present a review of the state of thinking and research on a pressing issue of the day: tax reform and tax cooperation and its gendered impacts. There is undeniably widespread agreement amongst all the entities of global governance with responsibility for a role in macroeconomic, financial and trade policies that gender equality and women’s empowerment are important to sustained growth and development. Increasingly, these same voices are articulating and researching on how fiscal policy both on the budgetary and on the revenue side can be made more efficient, gender sensitive and gender responsive. Taxation is the latest area of focused attention in this regard. There is now a quite strong body of work, including case studies, that demonstrates how the tax system can work to the disadvantage of socio-economic development and social goals including gender equality and women’s empowerment.
Inequality is one of the greatest challenges that the world needs to face. Inequality is intimately linked with poverty. Although there has been progress in reducing poverty, a large part of the global population (overwhelmingly living in developing countries) is still denied access to a dignified life. While no poverty and reduced inequality are two of the outstanding Sustainable Development Goals, these and other goals are unlikely to be achieved by 2030. In fact, inequality is on the rise. Changing this situation will certainly require significant efforts at the national and regional level. But it also requires an international architecture that supports those efforts by respecting the policy space that countries need and coordinating constructive actions within the multilateral system. The current initiatives to ‘reform’ this system will only be legitimate if they recognize the gaps in the levels of development and contribute to effectively address them under a fair, pro-development system of rules. Please see last month’s SouthViews on “Understanding global inequality in the 21st century” by Jayati Ghosh, development economist and Professor of Economics at Jawaharlal Nehru University.
Tax Haven Listing in Multiple Hues: Blind, Winking or Conniving?
By Jahanzeb Akhtar and Verónica Grondona
Tax havens are among the biggest challenges faced by developing countries in achieving their national development goals. States, international organisations, multilateral agencies and non-governmental organisations have all made several efforts at compiling ‘lists’ of tax havens at the multilateral and national levels, with varying levels of seriousness and outcomes. This research paper examines these efforts by analysing the objectivity of criteria used and the clarity of the final outcome in a comparative manner. The paper is organized into four sections dealing with the tax haven blacklisting by the Organisation for Economic Co-operation and Development (OECD), the countries of the South, the European Union (EU) and an analysis across lists. The concluding section offers some suggestions.
Building a Mirage: The Effectiveness of Tax Carve-out Provisions in International Investment Agreements
By Daniel Uribe and Manuel F. Montes
The present policy brief analyses the language of taxation carve-out provisions incorporated in International Investment Agreements (IIAs), and its effectiveness with regards to restricting the protection and dispute settlement provisions of IIAs only to non-tax-related claims. It illustrates that even in cases where such carve-out provisions have been incorporated into IIAs, the broad language and lack of clarity in the drafting of such provisions have effectively allowed Investor-State Dispute Settlement (ISDS) tribunals to scrutinize tax measures adopted by States, and even determine that such measures resulted in a breach of State’s obligations under the agreement. It makes recommendations on how States could effectively implement such carve-outs when negotiating, reforming or drafting new international investment agreements.
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