Justice Network Briefing Fixing the international tax system

but no organisation to facilitate global cooperation on tax.

Instead there are a collection of regional bodies, or ad- hoc institutions which have various different functions. The most powerful of these is the Organisation for Economic Co-operation and Development (OECD), a group of just 35 of the world’s wealthier nations. The maximum that the UN can muster is a poorly resourced committee of experts that meets twice a The international implications of tax policies, and the year and has no political role. potential for them to come into conflict with each- other, is well understood by nation states and has been well understood for a very long time. After all, one of the causes of the U.S. War of Independence was a Issues The lack of any transatlantic dispute on the taxation of tea. comprehensive global body to work in the area of Today, large multinational However, despite all of this, has meant that companies operate and taxation is perhaps the pressure to reform the global pay in many different only international issue of tax system has been slow countries around the world importance where there to translate into action. The and can use differences in is no effective, global, most ambitious attempt national tax systems to their intergovernmental institution in recent years has come advantage. which can facilitate the from the G7 and G20, which coordination of tax policies mandated the OECD to come Wealthy individuals and and promote better up with a set of proposals money launderers have standards of tax governance. for combating superseded the nation state, There is a UN Security by multinational companies. using companies and trusts Council, a World The outcome of this was based in secrecy jurisdictions Organisation, A World Bank the Base Erosion and Profit to shield their wealth from and even an International Shifting Programme (BEPS). tax collectors and law Postal Union, enforcement.

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Published: November, 2017 by the Tax Justice Network • Author: George Turner Tax Justice Network Briefing Fixing the international tax system

However, as a government- where everyone loses. Poorly in occasional meetings of dependent think tank of regulated financial services groups like the G8, and only some of the richest nations lead to the public becoming then as part of a crowded on the planet, the OECD has victims of fraud, low tax rates agenda. Dealing with the neither the mandate, the starve governments of the complex international issues experience, or legitimacy to revenue required to provide of financial regulation and drive though the important good quality public services. tax requires sustained political decisions required to Small and medium sized political engagement at the progress global action on tax domestic businesses lose highest level. avoidance and evasion. out against multinational tax avoiding giants, no International efforts to As a result, the outcome matter how good their combat climate change of the BEPS programme, product in terms of quality provide a good model as although with some potential or price. Because there is to how countries can reach for progress in combatting nothing creative, forward- political consensus on an tax avoidance, was widely looking in this process, but ambitious international seen as inadequate, mainly destruction, we agenda. The United Nations leaving ample scope for prefer to speak about tax Framework Convention multinationals to shift profits wars as opposed to “tax on Climate Change was into lower tax jurisdictions. competition”. negotiated at the ‘Earth Summit’ in Rio de Janeiro An appropriately resourced in 1992. The parties to the and fully representative, convention meet annually intergovernmental tax body Solutions to assess progress towards was a central demand of the The current international combatting climate change. G77 group of developing system has failed to address The Framework is supported countries, and of many civil the problem of tax havens by a secretariat and an society organisations from and tax avoidance. The time expert panel. the global South and North, has now come for a redesign. at the Addis Financing for It is this focus on a single Development (FfD) summit issue which helps to drive in July 2015. However, the There is a UN Security forward progress. establishment of such a Council, a World body was blocked then Trade Organisation, To deal with the crisis in by a number of OECD A World Bank and our governments, led by the governments should convene United States. even an International a global summit focused on Postal Union, but no , including In the absence of meaningful organisation to facilitate tax avoidance and financial co-operation on tax matters, global cooperation on secrecy under the auspices we are left with a race to the tax of the United Nations. bottom. Countries feel they need to ‘compete’ with one That summit should set another to attract money some ambitious targets to though lowering tax rates The problem with recent reduce all forms of illicit and tearing up regulations. attempts to deal with tax financial flows and design Often governments describe avoidance has been that a framework for how these this competition in a positive senior politicians have only targets would be monitored light, but the reality is that engaged with the issue and achieved. is a conflict on an international level

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In particular this would mean This apparent major conflict the establishment of a new of interest has resulted in international organisation to flexible, but not very robust assist countries in managing accounting rules which their tax systems. An agenda serve the interests of tax for such an organisation avoiding multinationals and would be to monitor the their professional enablers. international financial system Wrestling back from the through the collection of International Accounting data and statistics, provide Standards Board control over technical assistance to the design of international countries looking to improve financial reporting standards their tax collection systems and nesting it in a public and provide independent institution under the analysis of tax policies in umbrella of the United the same way that the IMF Nations is paramount for provides analysis of macro- making progress against tax economic policies. avoidance.

In addition, a key role for that The body should also seek international organisation the establishment of an would lie in the creation arbitration mechanism and maintenance of a set of like the World Trade international tax accounting Organisation (another standards that would UN body), which resolves allow tax administrations, disputes between different consumers, investors and countries’ tax policies. Such to robustly a body could adjudicate on assess a multinational whether governments were company’s financial position adopting policies designed on a country-by-country to encourage companies basis. to shift profits away from the countries where that The design of accounting profit is made, and into standards (IFRS and US- tax havens (for example, GAAP), which determine the use of special tax deals multinationals’ financial which are currently being reporting, have been targeted by the EU as an dominated for decades by example of unlawful state the big four accounting firms. aid), and to allow countries These firms in turn play an to take collective defensive important role in enabling measures such as the tax avoidance and illicit imposition of tariffs and financial flows. taxes on countries engaging in such behaviour.

We are an independent international network launched Published by the Tax Justice in 2003. We conduct high-level research, analysis and Network, 38 Stanley Avenue, advocacy on international tax; on the international Chesham, Buckinghamshire aspects of financial regulation; on the role of tax HP5 2JG United Kingdom in society; and on the impacts of , tax email: [email protected] avoidance, tax ‘competition’ and tax havens. We seek to create understanding and debate, and to promote Company number 05327824 reform, especially in poorer countries. We are not aligned to any political parties. © Tax Justice Network 2017