The global south loses $47B a year to tax abuse. That may soon change

It is a David against Goliath battle, a bid to snatch control over global tax rules from the world’s wealthiest nations and end the corporate tax dodging that swipes billions of dollars from lower-income countries. And yet, perhaps, David is winning? Five months after a historic vote to put the United Nations in the driving seat to wrestle the wheel from the Organisation for Economic Co-operation and Development, long described as a “rich man’s club,” campaigners believe change is truly coming. For decades, OECD members have been accused of dictating tax regulations in the interests of the financial powerhouses of New York, London, Frankfurt, and Tokyo at the expense of the rest of the world — defeating the last attempt at reform some 50 years ago. But now a framework for a new order is expected by August — covering controversies such as corporate tax evasion, ill-gotten gains hidden in tax havens, and how to tax the super-rich — for the hard road of negotiations to follow, subject to approval of the U.N. General Assembly, probably in November. No one believes it will be easy — but the mere fact it is happening is a victory and maybe a surprise, given the outright opposition of the United States, the United Kingdom, the European Union, and Japan. “We are positive that things are moving forward, that there is a recognition that the rest of the world cannot be kept out of discussions about tackling tax abuse,” said Alex Cobham, chief executive of the Tax Justice Network, an independent international campaign group. “The U.N. brings transparency, which gives us a chance that we do not have while this is decided behind closed doors at the OECD.” The dull wording of the resolution that set this ball rolling — to promote “inclusive and effective international tax cooperation at the United Nations” — simply does not do justice to the staggering sums at stake. A report by Tax Justice Network found that countries are losing around $480 billion in “missing tax” every year: $311 billion to multinational corporations and $169 billion to wealthy individuals. While $433 billion is diverted from the coffers of rich nations, that amounts to only 9% of their national budgets — while lower-income countries lose a terrifying 49% of their public health funds as $47 billion of their receipts go up in smoke. The tipping point came in New York as 2023 ended: a resolution to establish a convention to rework international tax procedures, tabled by Nigeria and championed by African countries, passed by 125 votes to 48. It was fought to the bitter end by wealthy nations who, in the words of one EU official, claimed it would duplicate “ongoing or completed international standards” and slow progress on “issues for which promising outcomes already exist.” An attempt by the U.K. — whose overseas territories have topped a list of the world’s leading tax havens — to neuter the process by removing any legal force was thrown out. The delighted African Union hailed the vote by saying: “The decades’ long fight of Global South countries to establish a fully inclusive process at the United Nations to participate in agenda setting and norm setting on international tax is now a reality.” A two-stage process follows: first, a 19-strong ad hoc committee will agree terms of reference for the convention, for approval by the General Assembly later this year. Then the text of a treaty must be negotiated and ratified. Campaigners liken it to the UN Framework Convention on Climate Change — creating a body to set out priorities and respond to fresh issues, such as new emerging forms of tax avoidance. There could even be Conferences of the Parties, or COPs. Cobham pointed to encouraging key areas emerging from the ad hoc committee’s first round of meetings in April and May, including: • Illicit financial flows — how to lift the veil of secrecy that enables tax-dodging through anonymous companies and undeclared assets, the laundering of criminal proceeds, and corruption such as the theft of state assets. • Corporate taxation — whether to end the “arm’s length principle” that allows multinationals to declare intra-group profits in places where they will be taxed less. • Cross-border services — to decide which country can tax and how if, for example, a London law firm advises a company in a lower-income country. The focus will also be on how to tax the richest individuals, information exchange, dispute resolution, the digital economy, environmental and climate challenges, and tax incentives. “Low-income countries don’t have influence at the OECD — and if you're not at the table, you're on the menu.” --— Sandra Martinsone, head of sustainable economic development work, Bond Cobham said: “After last December’s vote, we didn’t know if rich countries would turn up and engage with these negotiations. In fact, what’s happening is that the block of opposition from the OECD members is breaking up. “Some countries are engaging more positively — such as Germany, Norway and Spain over taxation of wealth — but others, including the U.K. to some extent and especially the U.S., are still really unhappy and are being very obstructive.” One stark moment saw the U.S. delegate “taking the microphone” to continue to argue that the OECD was “working for everyone” and should remain in charge. “Countries like the UK and EU member states need to decide, and soon, whether they want to support the [Group of 77 Developing Countries] in developing a system that works for all, curbing tax abuse that we all suffer from — or to align themselves with US obstructionism,” Cobham warned. Sandra Martinsone, head of sustainable economic development work at Bond, the network for U.K. aid organizations, said: “Global civil society has been campaigning for this for decades. Low-income countries don’t have influence at the OECD — and if you're not at the table, you're on the menu.” She said the U.K. had shifted from trying to block the convention, but was still arguing its work must “build on the progress” made at the Paris-based OECD, warning: “The U.K. might try to weaken the convention, or give it a niche role complementing the OECD mechanism, rather than replacing it.” Martinsone said all countries should recognize they are all losers from the current reality of tax secrecy and tax-dodging on a massive scale, adding: “The only winners are big businesses.”