Media Kit: Halting global tax dodges
Globalization and e-commerce have created a host of complications regarding the fair collection of taxes. How these new issues are handled - under discussion in preparations for the March 2002 International Conference on Financing for Development - will be a major factor in determining whether developing countries can mobilize sufficient resources to advance their economies and overcome widespread poverty.
The growth of business conducted over the Internet, of multinational corporations and of cross-border mergers and acquisitions has created a host of spillover effects in tax collection. Governments in developed and developing countries alike often are hard pressed to set the forms and rates of taxes in the strange new world of e-commerce and lightning cross-border financial flows. Tax avoidance and tax evasion are on the increase, according to the United Nations while, especially in transition and developing economies, Governments are having a hard time underwriting public services and public infrastructure for development.
Other issues arising in the age of globalization include confusion or disputes concerning the collection of taxes on the earnings of expatriate workers, as well as the so-called "race-to-the-bottom". The latter refers to the temptation of countries seeking investment from overseas to compete with each other by offering low tax rates or periods of zero taxation, neutralizing each other's incentives and lowering each government's tax take. Further, moves to tighten tax collection mechanisms and to close up globalization loopholes correspond with the current global drive to crack down on money-laundering, illegal money transfers, transnational crime and international terrorism.
At least ten formal proposals regarding remedies to these problems have been issued by multilateral institutions or fora, according to a UN report [A/AC.257/57/Add.1] submitted as input to talks leading up to the International Conference on Financing for Development (FfD), taking place in Monterrey, Mexico in March 2002.
Nine of these proposals have emerged in the past year. At the heart of these suggestions is a focus on international cooperation among tax authorities. The voluntary cooperative effort would involve not only exchange of information, but also technical support for tax administration and collection in developing countries.
The Global Tax Network
A proposal for an international effort to open dialogue on tax issues between Governments, to disseminate best practices and to identify strategic points for technical assistance has emerged from discussion among the staffs of the World Bank, the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD), representing 28 economically advanced nations. Their proposal was forwarded to the FfD Preparatory Committee.
The Network would not constitute a new institution, but rather a pooling of information and resources among the Bank, the Fund and the OECD. Responding to concerns that the viewpoints of developing and transition countries should be fully represented, one aspect of the proposal could be a mechanism that would engage relevant entities of the UN and the other participating institutions in the work. A further suggestion seeks to establish a universal governing mechanism for the Network. For instance, the UN technical paper on tax cooperation prepared for the FfD Preparatory Committee suggests that the work of the Network should be reviewed periodically by the UN Economic and Social Council.
The UN Ad Hoc Group of Experts on International Cooperation in Tax Matters Most intergovernmental discussion of international aspects of taxation takes place in fora that have a limited number of member countries. There is, however, a group of experts at the UN that is drawn from around the world. Leading tax authorities selected from UN Member States make up the Ad Hoc Group, acting in their personal capacities. The high-level of expertise and relatively informal brief of the Group facilitate discussion that is authoritative while also open and frank. It is the only major international tax forum in which countries of the North and South, and of all major regions, enjoy equal representation and an equal footing. Thus, it provides an ideal forum for exchanges of views and proposals with a global purview, and for encouraging the participation of developing and transition countries in international tax reform schemes.
Among the ongoing projects of the Group, implemented via its secretariat within the UN Division for Public Economics and Public Administration, is dissemination of a model bi-lateral treaty on tax cooperation as well as a manual for the negotiation of tax treaties. The model treaty is designed to be easily adapted to the specific needs of co-signing countries, and has been implemented in more than 800 instances, according to the UN Secretariat.
A proposed International Tax Organization
An idea for an International Tax Organization (ITO) was mooted by a panel of independent financial experts appointed by UN Secretary-General Kofi Annan and chaired by former Mexican President Ernesto Zedillo.
In their June 2001 report, presented as independent input to intergovernmental FfD discussions, the Zedillo panel suggested consideration of a new organization. The ITO might take on functions that would include offering technical assistance, providing a forum for the development of international tax norms, maintaining surveillance of tax developments in a manner similar to IMF review of national macroeconomic policies, restraining unwise tax competition designed to attract multinationals and arbitrating international disputes on tax matters. It was also suggested by panel members that such an organization might look into securing international agreement on a formula for unitary taxation of multinationals, as well as the establishment of principals for equitable collection of taxes from emigrants. This proposal was put to the FfD Preparatory Committee, where it did not find favour as implementable in the near future.
At the final FfD Preparatory Committee meeting prior to the Monterrey Conference, governments debated a text that called for international tax cooperation among national authorities as well as multilateral institutions, and engagement in a universal intergovernmental network of dialogue and interaction, which gives special attention to the needs of developing and transition countries. In short, while a precise mechanism for deeper international cooperation on tax matters has not yet crystallized, there is considerable interest in helping governments to strengthen their tax resources in support of their financing for development.
Development Coordinating Secretariat
Copyrightę 2002 United Nations, 10 February 2003. This is an archived website.