The idea of a global tax organisation has periodically received a run by academics and others. A notable proponent in the 1990s was the then head of fiscal affairs at the IMF, Vito Tanzi. But the idea has not been supported by developed countries.
During the negotiations over the UN’s Sustainable Development Goals, which were adopted in September 2015, developing countries pushed for the establishment of a global tax body under the auspicious of the UN. The argument was that developing countries were major victims of international tax avoidance but did not have a seat at the table when it came to setting the international tax laws. That was largely undertaken by the OECD; the ‘rich man’s club’ of 34 developed countries.
The Panama papers have reignited calls for a global tax body. The issue was raised recently with the IMF Managing Director, Christine Lagarde, and World Bank President, Jim Yong Kim. Lagarde said it was an area where ‘we all have to think outside the box’ but warned that no country would surrender their tax power to the UN. Kim said ‘we have to be very careful about thinking the solution to a problem is to add on another institution’. It is not surprising that the heads of existing international bodies are sceptical about the idea of a new institution that would tread on their turf.
While the Panama Papers are seen as further evidence of massive international tax avoidance and evasion, tax is really a subsidiary story. The Panama papers are largely about secrecy. They demonstrate how criminals — corrupt leaders, politicians and officials, organised crime bosses and drug lords — use shell companies and trusts to hide the proceeds of their crimes. Of course tax cheats also hide their income and assets, but avoiding tax does not seem to be the main motive of many of those caught in the Panama papers.
The Panamanian law firm at the heart of the leak, Mossack Fonseca, was a specialist in establishing shell companies. These are companies identified by a name and address while who actually controls them — the beneficial owners — are hidden. A surprising aspect about the Panama papers is that only a few Americans have so far been named. This may be due to a number of reasons, but one is that Americans do not have to go to Panama to find a compliant jurisdiction to establish a shell company; they can do it in Delaware and in a number of other US states. The main lesson from the Panama papers is not that a new international tax body is required, but that all jurisdictions have to crack down on forcing corporations to disclose their beneficial ownership.
Nevertheless the arrangements for dealing with international tax issues are substantially changing. The main catalyst has been the G20/OECD exercise on Base Erosion and Profit Shifting (BEPS). As noted, international tax was largely the preserve of the OECD. But the non-OECD G20 members participated in BEPS as equal members. In response to concerns from developing countries that they were excluded from the exercise, the OECD introduced a number of initiatives to increase the involvement of other countries. In addition the OECD is introducing an ‘inclusive framework’ that will allow interested countries to participate as ‘Associates’ in the implementation of BEPS. Critics expressed concern that developing countries are still required to accept a tax package they had no say in designing, and which does not meet their needs. Yet despite such concerns, the inclusive framework could see the number of countries involved in BEPS rising from 44 to well over 100.
Another recent development in efforts to improve coordination on international tax issues was the joint announcement last week by the IMF, World Bank, OECD and UN that they are establishing a ‘Platform for Collaboration on Tax’. This is in response to a request by the G20. The Platform is to formalise discussions on tax between the four bodies and coordinate their capacity building efforts. However it is an underwhelming announcement in that it focuses on such issues as the level of officers to attend meetings and the number of meetings to be held. It also has many provisos that the Platform will not impede the activities of each organisation or limit their mandates. Rather than demonstrating a commitment towards coordination on tax by the international organisations involved, it suggests more direct and concerted steps may be required to achieve effective collaboration on international tax.
It is highly unlikely that a UN Global Tax Organisation will soon be established. However major changes are underway in the arrangements for dealing with international tax issues. As a consequence of the BEPS, international tax has moved beyond the domain of the OECD and will involve on an ongoing basis not only the non-OECD members of the G20, but also developing countries. The ‘inclusive framework’ for BEPS implementation has set a precedent for the wider participation of countries on international tax issues. But the OECD will no longer be able to set the terms for how non-OECD members can participate. More formalised representation and governance arrangements will be required to ensure that the process of dealing with international tax issues in a forum of over 100 countries is efficient and effective.
The process towards more representative arrangements to deal with international tax issues is one of evolution, rather than revolution involving the establishment of a new global tax organisation. It will be messy process, but it is irreversible.