At a global summit that addressed how illicit financial flows interfere with reducing poverty, wealthy nations rejected a plan to expand the UN’s power to fight global tax evasion.
The plan, promoted by developing economies and transparency groups, was the subject of the meeting between delegations of UN members from around the world in Addis Ababa, Ethiopia this week. The goal was to figure out how to pay for the next generation of development goals that the UN will adopt later this year.
Many developing countries see more money slip out of their borders illicitly through tax and trade fraud than what enters as development aid and foreign investment, which ultimately impedes their economic advancement.
African nations have been among of the worst victims of illicit flows; In recent years, Ethiopia has lost the equivalent of 11% of its annual production.
This year’s finale communique, to be released July 15, will recognize illicit flows from trade fraud as a development problem and commit to substantially reducing them by 2030, and eventually eliminate them, sources tell Quartz. Most concretely, the communique will call for new estimates of the composition and volume of these flows.
“The fact that the document calls for an eventual elimination of illicit flows and says that an international body should estimate the volume of those flows is unprecedented,” Tom Cardamone, a director of the NGO Global Financial Integrity, tells Quartz. “This language shows a consensus view on the [illicit financial flows] issue for the first time. For us, this is a home run.”
But officials at the Financial Transparency Coalition, another development non-profit, say that the conference fell short by failing to address the issue of international tax evasion.
Delegations from developing countries had pushed to turn the UN tax experts committee into a fully-fledged intergovernmental agency to coordinate tax policy. The idea would be to limit situations in which profits are shifted away from the jurisdiction in which they are earned to countries where companies pay no taxes at all.
But the US, EU, and Japan all objected to this plan, and it was left out of the final statement. Instead, a draft of the communique obtained by Quartz calls on the UN tax committee to meet more frequently.
“The lack of an ambitious decision on upgrading the UN Committee of Experts on international cooperation on tax matters into an intergovernmental body, in our view, is a historic missed opportunity,” Indian finance minister Jayant Sinha said during the conference’s final plenary session.
Transparency advocates tell Quartz that the US was particularly responsible for blocking the provision; Treasury Department officials in Washington and with the delegation did not respond to requests for comment.
One argument against giving the UN new powers on international taxation is that the OECD is already working to fight profit-shifting; Another body would only complicate matters. In Addis, the OECD launched an initiative to bolster the skills of tax administrations in developing countries. But the OECD has been accused of maintaining too cozy of a relationship with multinational companies that exploit its transfer pricing guidelines to avoid billions of dollars in taxes.
Critics also point out that the OECD is run by a select group of wealthy nations. The developing countries want a full seat at the table, akin to recent reforms that rejiggered the membership at the International Monetary Fund (which the US has yet to ratify) or the creation of an Asian Infrastructure Investment Bank (which left the US on the outside, looking in).
“Two of the most notorious tax havens on the globe are part of the select few currently writing the rules, so creating a universal body would only help to create a truly democratic process, and one that’s better suited to tackle the issues of tax dodging and illicit financial flows,” Pooja Rangaprasad, a policy coordinator at the Financial Transparency Coalition, said in a statement.
She is referring, of course, to the US and the UK.