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This year, the 78th session of the UN General Assembly had a renewed call to reform multilateralism and demand more commitment from developed countries to deliver on promises and duties related to today's global challenges. Among these calls to change the status quo, the Second Committee of the General Assembly is studying and debating the Report of the Secretary-General on promoting inclusive cooperation, which calls for the creation of effective international tax rules.
This discussion has gained international interest as it could lead to the creation of a multilateral convention on taxation. The proposal has invigorated criticism against the OECD/G20 Inclusive Framework on BEPS, as it is a process that has not been inclusive and ineffective in addressing global challenges such as inequality, digitization of the economy, and the climate crisis. In this regard, several countries of the Global South are calling for a global regime that allows States to mobilize sufficient resources to guarantee human rights and the commitments of the Sustainable Development Goals.
Thus, since October, the Second Committee has been holding discussions to submit a draft resolution to the General Assembly in November to follow up on the process. To understand the magnitude of the developments, the Human Rights in Tax Policy Initiative spoke with CESR attorney and consultant Olivia Minatta, who detailed the details of the future of this potential Convention and its importance for low- and middle-income countries.
Initiative: Who benefits from the lack of global taxation? Under what mechanisms?
OM: The need for global taxation rules has to do with how multinational companies currently operate. These entities carry out their economic activity —the production and sale of goods or services— in different countries simultaneously, through subsidiaries or companies belonging to the same group. Because of this activity in these sovereign territories, several countries consider having taxing powers over such entities beyond those where they have their main offices.
However, companies are looking for ways to pay as little tax as possible. They use different legal strategies to take advantage of the regulatory vacuum that exists at the global level, or they abuse double taxation treaties or the existence of tax havens. A common practice is, for example, profit shifting, transferring profits from one jurisdiction to another, often tax havens or countries where they do not have economic activity, to avoid taxation in the jurisdiction that imposes a higher tax burden but where they carried out the economic activity.
Due to the lack of international regulation and intending to attract multinational investment, countries establish different regimes that grant meaningful tax benefits, known as the "race to the bottom." It is a struggle between countries to attract foreign investment by creating more and more exemptions —although there is no conclusive evidence to know whether these regimes are effective in promoting investment.
All this, not to mention the digitalization of the economy, which has allowed companies to transport Capital, and offer products and services in several countries without having any physical presence there. A practice that hinders countries from adopting effective tax policies based on their tax frameworks.
Initiative: Who is interested in creating a global tax mechanism?
OM: Certainly, the countries that perform as tax havens are the least interested. Among them, we find not just the Caribbean islands but rich countries such as Luxembourg and Switzerland. On the other hand, there are countries that, although they are not tax havens, oppose because they are home to the headquarters of multinational companies, as is the case with the United States. European countries have adopted ambivalent positions, as they agree to create this mechanism; nonetheless, it seems they will oppose any effort at the UN, arguing that a new process would be "duplicating" efforts with the OECD framework.
But, beyond that, there is a consensus to have an international tax coordination and cooperation system. The problem is that this system started to be negotiated in the OECD in 2013 and resulted in the Inclusive Framework on BEPS that, as I mentioned, is considered ineffective by most poor and middle-income countries to address their respective problems.
The OECD system consists of two pillars of global taxation. The first pillar seeks to distribute the taxable profits by considering not solely the place of tax residence but also the places where they carry out their economic activity. The second pillar consists, among other things, of creating a minimum taxable base to prevent countries from persisting in the race to the bottom.
This framework is identified as a problem, not because it does not pursue a laudable objective, but because, as the UN Secretary General's report details, its elaboration was not very inclusive and, therefore, did not provide answers to the objections raised by several countries that would be affected by its rules. Even when the number of countries participating in the OECD negotiations expanded in 2021, these countries could not vote or influence the discussion of some agenda items. Therefore, many countries in the Global South and some independent estimates have stressed that applying these rules would not benefit them.
Initiative: In the first two cases, binding conventions, how could they change the rules of the game?
OM: In both cases, there would be a more inclusive process for negotiating international tax regulations since it would take place in the framework of the General Assembly, where all countries discuss and vote on an equal footing. If the third option is approved, it could mean that, in practice, the OECD system will prevail.
In terms of substance, there are still no concrete discussions in the General Assembly sessions. But this new regime would seek a simple way for taxing companies according to the economic activity they carry out and not only according to their tax domicile. Another remarkable consequence would be to set a higher taxable minimum than that proposed by the OECD, once again, to discourage the race to the bottom and the search for tax havens by companies.
Initiative: If a mechanism such as a UN-based Convention materializes, what would be the role of regional platforms such as the Africa Group or the recently created Regional Tax Cooperation Platform for Latin America and the Caribbean?
OM: It seems to me that they have a vital role, from a political and technical point of view, to produce evidence. These platforms and discussion forums have to do with being united, with common positions in the face of global discussions. For example, although countries may have disagreements, Africa and Latin America share several problems, such as a low tax burden on corporations, very high inequality, and high dependence on some industries. The idea is that these discussions should be dealt with jointly because many of these are not problems that affect OECD countries.
The case of the Africa Group demonstrated this. They passed a resolution at the UN because they worked together. But if it had only been Nigeria, it might not have made it. Because that's an additional thing, many countries have incentives to negotiate individually, for example, accessing the OECD. But if you act as a bloc, it is more difficult for developed countries to co-opt developing countries.
Initiative: How can a future Convention be aligned with the new challenges, especially in the gender and the environment agendas?
OM: Everything has to do with the fact that we need resources to implement affirmative policies for vulnerable groups and so for environmental and climate policies. However, this discussion takes place in a broader context, in a debate about the current global financial scheme. The discussion comprehends several rules related to commerce, investment, and, among them, the rules on international loans, the financing of States, International debt, and the role of multilateral credit banks.
There is a consensus that all of this has to converge with the Sustainable Development Goals (SDGs) and Human Rights commitments. The General Assembly has urged to move forward with the SDGs because only 15% are underway. And one of the main reasons they are not advancing is because there are no resources. Many countries have an enormous debt crisis, worsened after the pandemic. So, this possible Convention is part of a process to rewrite the international financial rules to achieve global equality.
Initiative: What discussions have taken place within the UN? Which are still pending?
OM: At the beginning of October, the sessions of the Second Committee of the General Assembly began, where the Secretary General's report, which we have already mentioned, was presented. Now, the countries are preparing their delegations and positions on the subject. These weeks are the informal sessions, with an expected proposal for a resolution by the African Group over the follow-up on the previous resolution and to continue with this process. The vote by the General Assembly will take place in November. After that, we will see if this initiative has continuity and how.
The Regional Platform for Tax Cooperation in Latin America and the Caribbean, the main outcome of the First Ministerial Summit for Inclusive, Sustainable, and Equitable Global Taxation, was announced with great fanfare by ministers and high officials from 16 countries in the region two months ago. This platform, whose technical secretariat is managed by ECLAC (Economic Commission for Latin America and the Caribbean) and has Colombia's government as its temporary presidency, aims to be a permanent instance for Latin American and Caribbean countries to discuss and coordinate regional taxation matters.
However, discussions and decisions regarding global taxation cannot remain in the hands of governments and other actors who only engage with each other. Civil society has insisted that these actions must be participatory, promote substantive equality and incorporate the perspectives of historically marginalized populations that have been excluded from fiscal debates. This idea aligns with several of our Principles for Human Rights in Fiscal Policy.
Therefore, it is positive that the declaration signed by ministers during the Cartagena Summit explicitly highlights efforts to ensure that international and regional tax policies are "inclusive, equitable, environmentally and socially sustainable, and supportive of growth, the reduction of inequalities, and the achievement of the Sustainable Development Goals."
To achieve this, it is essential for as many people, communities, and organizations to get involved and seize the unique opportunity offered by the new Platform. Only with the participation of society can the space be sustainable without depending on the will of the current governments and, instead, transform into a commitment to achieve a new way of making public policy in our region.
Taking this into account, we consulted several representatives from social movements in Latin America and the Caribbean who were present during the civil society dialogues accompanying the Summit. Representatives of indigenous peoples, Afro leaders, feminists, activists for the right to health, and the fight against climate change, among others, agree that being an active part of this episode of history for social justice is fundamental.
"Latin American governments need to understand that we, the people, are guardians and caretakers of all sources of life and deserve to have participation and not be forgotten in decisions about global taxation. We are here to harmoniously dialogue and make it understood that our Mother Earth is not to be exploited, that the use of resources must be decided by very consistent, sensitive people, or else our rights will be trampled upon. Inclusive and equitable global taxation is a very important instrument for our empowerment as indigenous peoples, as it allows us to share the solutions we know can solve so many crises. Now, with this new tool, we will be able to touch the Achilles' heel of those who oppose a fair and equitable distribution of taxes."
"Fiscal justice is the favorite tool to achieve racial justice, as progressive taxation reduces disparities and materializes our rights. For example, in Colombia, there is a fundamental right for black communities to access territory, but that can only be guaranteed if there is a broad fiscal effort. Only with the necessary resources can we expand this right and contribute to the reduction of ethnic-racial inequalities. That's why fiscal policy should stop being seen as a means of macroeconomic stabilization and begin to be understood more as a means to follow a path of development in which cooperation between countries shows better routes."
"In forums discussing global taxation, there is not much representation from grassroots communities, and even less from the most vulnerable, those who work from their territories to face the consequences of climate change head-on. This happens because there is a problem associated with how taxes are perceived. For many, the technicalities and complexity of the issue become a barrier to understanding why this is important and why everyone should be represented in the debate. The challenge then is to use simpler language and bring fiscal justice closer to children and young people and intergenerational justice, building collective paths to decide how and from where resources will be obtained to finance the fight against climate change."
"Creating spaces for dialogue among different sectors of countries on Latin American regional agreements is very important, but we need to overcome the underrepresentation of more territorial movements. Those of us most involved in the issue of global taxation are activists, but almost all of us are also academics with some alliances with territorial movements. However, it is these women from the territories who provide all the resources to meet the care demands that states do not address. We have a responsibility to engage in dialogue with them, to build and share narratives where it is understood why taxation is important in people's daily lives and their rights."
"The dialogue around global taxation allows, for the first time in many years, an opportunity for very diverse sectors of civil society to participate in fiscal matters. The fiscal justice agenda allows us to explore a wide range of aspects, from the relationship with human rights and transparency to actions against climate change and the digital industry. This is important because as the political aspect is balanced with civil society participation, we stop talking only about taxes and move towards the creation and promotion of a fiscal culture that ensures governance".
As every year, since September, the United Nations General Assembly convenes in New York for its 78th session. In these weeks, the speeches of Latin American leaders have made headlines, but amidst the intense agenda of discussions on international politics and human rights, a scenario with clear opportunities to promote tax cooperation between countries and regions stands out.
To discuss this opportunity, we must refer back to December 30, 2022. At that time, a group of countries, notably representatives from African governments, managed to initiate intergovernmental debates at the UN General Assembly to explore ways to improve the inclusivity and effectiveness of international cooperation in fiscal matters. The Secretary-General also committed to preparing a report proposing measures that could be adopted.
Meanwhile, in recent months, countries in Latin America and the Caribbean have made significant progress on the same issue. The First Ministerial Summit for Inclusive, Sustainable, and Equitable Global Taxation, held in late July in Cartagena, resulted in the Regional Platform for Tax Cooperation for this region and promises to be a permanent forum to discuss and coordinate regional tax-related matters.
The Latin American precedent strengthens the process led by the UN, as the mentioned report has already been published and, as happened in our region, emphasizes the need to reinforce international cooperation in fiscal matters and reform the international tax system to combat tax evasion, avoidance, and illicit financial flows. This is crucial for building fairer, more inclusive, and effective fiscal systems, essential to providing states with funds to promote human rights and address climate crises.
Based on this report, the African Union (especially Egypt, Ghana, Nigeria, and South Africa) pledged to draft a resolution supporting some of the options presented in the document. The resolution will be discussed this October in the UN General Assembly's Second Committee (responsible for economic and financial matters), where negotiations on the next steps for a possible UN Tax Convention are expected to take place.
In civil society and among the governments that supported the Latin American and Caribbean Regional Platform for Tax Cooperation, there is anticipation. In fact, the Colombian government, which assumes the pro tempore presidency of the Platform until July 2024, held an event to officially launch this space with a joint dialogue between officials from the member countries' tax administrations and their missions to the United Nations, as well as African representatives.
Maria Fernanda Valdés, Technical Vice Minister of the Ministry of Finance and Public Credit of Colombia, mentioned that, in light of the process taking place at the UN General Assembly, it is important for Latin America and African countries to unite around international tax cooperation. Delegations from Africa set an example of how to create and sustain unified positions in international discussions.
In this regard, Chenai Mukumba, Executive Director of the Africa Tax Justice Network, states that her continent has been insisting for more than two decades on the need to build a much more effective international fiscal cooperation, with a much more relevant role for the United Nations in the global tax architecture. In this sense, she says that several points from the report presented by the Secretary-General are noteworthy: 1. recognizing that it is imperative for the international tax system to reflect principles that are universally applicable and preserve notions of equal treatment for all countries, as current tax discussions are being led by the OECD with a hierarchical system that leaves many countries out. The other important aspect is that the conversation on tax cooperation, happening in many scenarios simultaneously, should address other issues, such as social inequality, in a unified manner and bring them collectively to the UN.
But negotiations at the United Nations are not easy. Magdalena Sepúlveda, Director of the Global Initiative for Economic, Social and Cultural Rights (GI-ESCR) and member of our Committee of Experts, states that the Secretary-General's report marks a milestone in international cooperation in taxation since it places the need for the United Nations to be the framework for a democratic and inclusive process on tax issues at the center. However, Sepúlveda says that alliances and political consensus among countries on the alternatives proposed in the report are needed, and that takes time. "The creation of an open-ended intergovernmental committee to discuss the options we have for the global platform seems to be the most appropriate,” she concludes.
From July 3-7, civil society organizations, experts, activists and social movements will gather to discuss regional tax cooperation, the feminist tax agenda, sovereign debt and other key issues for tax justice and human rights.