Financing Development, OECD & the Creation of an International Tax Body

Financing Development, OECD & the Creation of an International Tax Body

From July 13 to 16, Addis Ababa hosted the Third International Conference “Financing for Development,” a United Nations (UN) initiative started with 2002’s Monterrey Consensus that aims to boost development finance via the mobilization of domestic and foreign financial resources, international trade, greater financial and technical cooperation, the handling of external debt and the addressing of systemic monetary, financial and technical issues.

International taxation, as studied and worked by the UN’s Economic and Social Council’s (ECOSOC) Committee of Experts on International Cooperation in Tax Matters (Committee), held the most prominent spot on the “Financing for Development” summit’s agenda in Ethiopia.

Since 2004, this Committee composed of 25 member states has led the push for “increased international cooperation in tax matters to the benefit of developed and developing countries alike” and ensured “the active participation of developing countries, especially the least developed ones, in relevant [tax] activities.”

Civil Society’s Hope for an International Tax Body to Facilitate Financing Development

For many civil society organisations and developing world governments and tax authorities, the hope during Addis Ababa’s “Financing for Development” conference was to move forward with the creation of an international and intergovernmental tax body within the UN to replace the Committee.

This campaign has been viewed as a way of promoting greater participation from the developing world in setting international tax policy, facilitating the collection of local tax revenues, pushing for improved development finance and curtailing tax evasion and other sorts of illicit financial flows.

Addis Ababa hosted the Third International Conference

Creation of an International Tax Body Delayed

In spite of these efforts, many of the world’s richer nations voted down this development, citing the Organisation for Economic Co-operation and Development (OECD) as a platform via which international tax policy can be influenced, as evinced by recent moves for greater exchange of financial information to fight illicit financial flows.

Jose Antonio Ocampo, former United Nations Under-Secretary-General for Economic and Social Affairs and former Finance Minister of Colombia, criticized this decision by the developed world, saying that any international taxation body “must operate under the auspices of the United Nations, which bears the institutional legitimacy necessary to respond effectively to the challenges of globalization with coherent global standards to combat abusive tax practices and ensure fair taxation of corporate profits worldwide.”

Indian Finance Minister, Jayant Sinha, shared this sentiment, saying during the event’s final plenary session, “The lack of an ambitious decision on upgrading the UN Committee of Experts on international cooperation on tax matters into an intergovernmental body, in our view, is a historic missed opportunity.”

Addis Ababa Tax Initiative

OECD & UNDP Set Up TWIB & Addis Ababa Tax Initiative to Assist Development Finance

However, Gail Hurley, Policy Specialist on Development Finance for the United Nations Development Programme (UNDP), said that while “this demand was not met, there is a commitment to work together to significantly reduce, and ultimately eliminate, illicit financial flows, as well as to strengthen the capacities of developing country tax administrations.”

During the “Financing for Development” conference, the OECD, alongside the UNDP, launched Tax Inspectors Without Borders (TWIB), a program designed to help third world countries collect more money in taxes and boost development finance by improving their tax systems and auditing capabilities and limiting tax evasion.

Speaking during TWIB’s launch on July 13 in Addis Ababa, OECD Secretary-General, Angel Gurría, said: “The challenges faced by developing countries are being acknowledged internationally and we are delighted to mobilise the best experts worldwide in a practical contribution to domestic resource mobilization.”

Tax Inspectors Without Borders

“The new partnership between the OECD and UNDP on Tax Inspectors Without Borders will significantly extend the global reach of existing efforts to build audit capacity while sending a strong message of international support to developing countries,” Gurría added.

The OECD also set up the Addis Ababa Tax Initiative, an effort to improve tax regulations in developing countries and provide in-depth training to local tax officials to enable them to increase tax revenues.

The 30 countries that signed onto this effort “declared their commitment to implement the Addis Ababa Accord in the leading action of raising domestic public revenue and to improve fairness, transparency, efficiency and effectiveness of their tax systems.”

More specifically, signatories chose to pursue a three-pronged approach that calls for action in:

  1. “stepping up technical cooperation in tax/domestic revenue mobilization;”
  2. “enhancing domestic revenue mobilisation so as to spur development,” and;
  3. “ensuring policy coherence for development.”

Australia, Belgium, Cameroon, Denmark, Ethiopia, the European Commission, Finland, France, Italy, Germany, Indonesia, South Korea, Liberia, Luxembourg, Malawi, Netherlands, Norway, Philippines, Sierra Leone, Senegal, Slovenia, Sweden, Switzerland, United Kingdom, and the United States agreed to this initiative.

Questions on Financing Development:

1. Do you think an international tax body is needed to set up global tax policy and push for improved development finance? Or are OECD efforts like those established during the “Financing for Development” conference enough to curtail tax evasion, tax avoidance and other types of illicit financial flows?

2. In your opinion, what is the best option for the developing world?

We’d love to hear your thoughts on this pertinent issue!

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