Tax avoidance like that highlighted by the Paradise Papers is among the threats to the economic and social aspirations of the international community – embodied in the Sustainable Development Goals – since tax not paid denies an important stream of financing, experts meeting with United Nations member States in Geneva this week said.
The inaugural meeting of the Intergovernmental Group of Experts on Financing for Development happened to coincide with the publication of the Paradise Papers by a consortium of journalists exposing the vast scale of tax avoidance by transnational corporations and superrich individuals.
Topics covered by the experts included the problem of “illicit financial flows”, a catch-all term for tax evasion, capital flight, trade mispricing, foreign exchange manipulations, money laundering and other maneuvers – including tax avoidance.
The meeting took place against a background of sluggish global economic growth in the decade since the financial crisis.
“Many observers argue, including here at UNCTAD, that the structural problems laid bare by the global financial crisis of 2007-08 remain unresolved,” UNCTAD Deputy Secretary General Isabelle Durant said. “Developing countries face multiple challenges in this climate, including a net outflow of capital and low commodity prices.”
She added: “The urgency of combatting illicit financial flows, for example, was recently underlined by the publication of the Paradise Papers. We cannot tackle the issue of domestic resource mobilization properly without addressing the systemic factors that allow illicit financial flows to continue.”
Among these systemic factors, the three-day meeting also looked at ways of strengthening domestic tax frameworks, the role of development banks, modernizing the Official Development Assistance system, and how private finance could be exploited through “blended” financing instruments.
Panelists included current and former government officials such as ministers and central bankers, academics, and civil society representatives.
“We are moving away from a Millennium Development Goals framework [2000–2015], in which even tax didn’t even feature, toward one in which tax is the first means of implementation and illicit financial flows are identified as a key obstacle,” Tax Justice Network Chief Executive Alex Cobham said.
“Tied in with that is the idea of moving away from an old-fashioned view of corruption as a problem in lower-income countries and as a problem in terms of aid effectiveness towards seeing corruption as a global phenomenon driven, not by low-income countries, but by financial secrecy on high-income jurisdictions.”
All forms of illicit financial flows, Mr. Cobham said, ranging from the criminal theft of state assets to legal tax avoidance (and often a complex mix of many forms) “give rise to a reduction in the funds available to states and in the effectiveness with which states use those funds – that’s the basis of their damaging impact”.
“The common feature of illicit financial flows is that they are deliberately being hidden,” he said. “They may be being hidden because revelation would lead to criminal prosecution but they may also be being hidden because they are socially unacceptable even if illegality is less clear, and that’s where we see a lot of multinationals’ [tax] avoidance – legality may be arguable but they are kept as far as possible out of the public eye.”
The experts were convened in response to United Nations’ member States call to strengthen UNCTAD’s mandate in this crucial area of the 2030 development agenda at UNCTAD’s fourteenth ministerial meeting in Nairobi, Kenya, in 2016.
This followed a 2015 summit on financing for development which resulted in the Addis Ababa Action Agenda proposing a series of bold measures to overhaul global finance practices and generate investments for tackling a range of economic, social and environmental challenges.
“This expert group meeting is therefore a direct response by Member states to the call in Paragraph 88 of the Addis Ababa Action Agenda to strengthen UNCTAD’s role as the focal point within the United Nations for the integrated treatment of trade and development and the interrelated areas of finance, technology, investment and sustainable development,” Ms. Durant said.