Clár Ní Chonghaile :
The Panama Papers have pulled back the curtain, revealing how tax wizards push and pull the levers of the global system to benefit elites. The fact that tax havens and offshore accounts are used by powerful individuals and corporations to wriggle out of tax obligations is no surprise; some developing countries and activists have long called for reforms, and their fight is gaining momentum.
Poor countries lose huge sums of money every year – more than $100bn (£70bn) in corporate tax alone – because of discrepancies in the global tax system. They say a worldwide shift in how and where tax policies are decided is urgently needed.
Many want a global body on tax cooperation, under the auspices of the UN, to allow developing countries to be at the table when tax policy is decided. This has hitherto been done inside the Organisation for Economic Co-operation and Development (OECD).
This month, officials meet in New York for a follow-up to last year’s financing for development summit in Addis Ababa, which was meant to come up with ways to fund the sustainable development goals. Calls at the summit to set up a UN body on tax were largely ignored.
“We hear from developing countries that they feel it is the unresolved issue from Addis Ababa,” says Tove Maria Ryding, policy and advocacy manager at the European Network on Debt and Development (Eurodad).
“Developing countries are very aware that they have signed a climate agreement and a lot of SDGs, and there is no financing mechanism,” she says.
“They’ve been told, ‘Well, you can just collect taxes and mobilise money domestically’ – and their answer to that is, ‘We want the global tax body’. But the rich countries have so far blocked this proposal. They seem to cling to the misunderstanding that they will be able to decide the global tax rules on their own and then get all other countries to follow their rules. That’s not only immoral. It’s also quite naive.”
Tax revenues help countries develop, and such flows – sometimes dubbed domestic resource mobilisation – are increasingly critical as the world grapples with multiple crises that are putting unprecedented strain on aid budgets.
Financing emergency relief and development will be one of the top talking points at the world humanitarian summit next month in Istanbul.
The OECD, sometimes described as the rich countries’ club, has embarked on a two-year reform process to combat aggressive tax avoidance, particularly by multinationals that exploit differentials to move money across borders. The package of reforms is known as the base erosion and profit-shifting, or Beps, project.
In February, developing countries were finally given a seat at the OECD table. But Ryding says the process is still not democratic, because most of the decisions – nearly 2,000 pages of reforms – have already been adopted, and developing countries must accept the reforms already agreed.
Savior Mwambwa, the head of ActionAid’s international tax campaign, describes the OECD move as “tinkering at the edges of a huge injustice”. He argues that while it might be based on a genuine desire for inclusiveness, it does not go far enough.
“It still doesn’t touch the core of global international governance in terms of who really is involved in making the rules,” says Mwambwa, noting that most wealthier countries would rather others moved first than be trendsetters themselves.
“A lot has to do with the political will of countries to resolve this in a much more decisive, radical way that would bring about meaningful change. The small steps that are being taken are positive but if they are so small, and they take so much time, it is not good enough.”
Mwambwa, who was in London last month to speak before an all-party parliamentary group on responsible tax, says unfair or opaque tax systems do a disservice to everyone, and reflect the increasing power of corporations and a wider global inequality.
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“We are not just talking about tax … There is also the banking system, which aids and abets flows out of Africa. There is the trade component … When you talk about tax or trade, you are up against very powerful forces. It’s not just multinational companies acting on their own. It’s the whole system working collectively to maintain a system of privilege and benefits. It’s very much a political question. It’s the essence of politics,” he says. In poor countries, corporate taxes can fund education and healthcare, pay for roads and railways and increase gender equality.
The Panama Papers offer empirical evidence of the cost of tax evasion, shedding light on a number of tax-related stories in Africa, including missing taxes from oil revenue in Uganda, secrecy surrounding diamond mining in Sierra Leone, and hidden players in Angola’s sovereign wealth fund.
Aggressive tax avoidance is not just a problem for developing countries. There is a heightened awareness in Europe and elsewhere of the millions lost because of complex tax deals and havens. The decade-defining refugee crisis, mainly due to the war in Syria, has also focused minds on international and domestic needs for additional financing.
Ryding says she has noticed more civil servants speaking in favour of an intergovernmental tax body, but the official EU position has not shifted.
“The sad part is that we are losing time and that actually means we are losing a lot of money. We estimate that in the EU alone we are losing between €50-70bn every year,” she says.
One long-standing obstacle to global tax reform is the way countries compete with each other to offer preferential tax deals in order to attract investment from multinationals.
Mwambwa says African countries have realised they can combat this by working together, and are doing so through regional bodies such as the East African Community and the African Tax Administration Forum.
“A number of African countries have seen that only by cooperating with each other can they beat this race to the bottom … they have begun to discuss how they can have something that is very specific to Africa, a model treaty for example … A lot of them are rethinking the role of tax incentives and tax holidays.”
Given the powerful vested interests involved, Mwambwa says civil society has a key role to play in demanding reforms.
“Tax is a technocratic issue, but it’s much more a political process. Citizens need to get involved. You can’t have a few corporations having so much power, not just over their own businesses but also over the way the world is run.”
Ryding feels developing countries will eventually reach breaking point and ditch the “immoral” global system – but this will just create more opportunities for multinationals.
“Developing countries are not just going to accept the rules that have been given, and that means we are going to have a very confusing mess of different tax rules – and that is a big advantage for companies that want to find loopholes.”
(Clár Ní Chonghaile’s debut novel, Fractured, was published by Legend Press in February 2016 and is available from the Guardian bookshop. She is an editor on the Global development desk. She has worked as a journalist in Paris, Madrid, London, Abidjan, Dakar and Nairobi).
