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The author is a former President of South Africa and Chairman of the African High Level Panel on Illicit Financial Flows
The question of what to do with global corporate tax abuse, including tax havens, has been on the international agenda for many years. And this is an extremely important matter for Africa and developing countries around the world. I am therefore very concerned about the possibility that progress on this matter could be stalled by a debate about exactly how to move forward.
For many Africans, meeting the UN Sustainable Development Goals (SDGs) set out in the 2030 Agenda for Sustainable Development is a matter of life and death. Unfortunately, their ability to achieve these goals is compromised by illicit financial outflows.
In 2015, at an international conference on financing for development in Addis Ababa, African delegates and others from countries of the Global South endorsed a call to mobilize domestic resources to achieve the SDGs. At the same time, they were also aware of the huge sums that African states were losing through hidden capital movements.
A panel I chaired reported that these capital movements are losing billions of dollars every year to African countries and depriving us of the resources we need for development. The panel found that commercial tax evasion and avoidance (including false commercial invoicing and abusive transfer pricing by multinational companies) accounted for the largest share of illicit financial outflows, accounting for two-thirds, followed by organized crime and corruption in the public sector.
It is estimated that lower-income countries lose nearly half of their public health budgets each year to multinational corporations who shift their profits to tax havens and to wealthy individuals who hide their assets in offshore jurisdictions.
However, concerns about international tax abuse and financial secrecy are not limited to the countries in the south. These should be matters of global importance.
As early as 1996, the G7 heads of state and government discussed tax systems that would lead to harmful competition between states and ultimately the erosion of national tax bases. They called for a multilateral approach to limit such practices.
The 2009 G20 meeting went a step further, calling for global financial transparency and a commitment to crack down on financial secrecy jurisdictions and tax havens.
Last year, the UN’s Africa Group introduced a resolution at the General Assembly calling on the organization to work on international tax cooperation. The resolution was adopted by consensus.
A follow-up proposal has now been submitted proposing that the General Assembly authorize the establishment of intergovernmental structures to draw up a framework convention for international cooperation in the field of taxation.
In the coming days, the United Nations could hold a historic vote to launch the processes needed to find the first global response to international tax abuse. Once enacted, an international tax cooperation agreement would prevent an estimated global loss of $5 trillion to tax havens over the next decade.
Unfortunately, progress on this important issue could yet be derailed by a bitter dispute over whether this international convention should be negotiated by the UN or the OECD.
African countries strongly believe that the United Nations is the right place for these negotiations – for the obvious reason that this would ensure the inclusivity and participation of all countries in this process and therefore shared global responsibility for the outcome.
The valuable work that the 38-country OECD has already done in this tax area would be fully integrated into the UN negotiations involving all 193 member states.
Unfortunately, the EU, together with Great Britain, continues to argue against the UN option.
Of course, it would be desirable if the current General Assembly draft resolution, which proposes that the UN should establish the bodies and processes to negotiate the tax treaty, is adopted by consensus.
That is why I call on the British government and its counterparts in the EU to join the majority of UN member states, which represent the majority of the world’s poor, and vote to sit at the table with the representatives of developing countries.
This is the best way to negotiate an outcome that would dramatically change the lives of the world’s impoverished billions of people for the better.