While a major global campaign to cut down on tax evasion is picking up momentum, anti-poverty advocates say the initiative overlooks the world’s poorest countries.
Last week, 51 countries from four continents agreed to systematically exchange tax information by 2017, with the aim of allowing authorities to quickly register any disparities. 89 additional countries said they would follow suit by the following year, according to the Organization for Economic Cooperation and Development (OECD), a grouping of wealthy countries that is spearheading the project, IPS reported.
Global tax evasion has risen to the top of the global agenda in the aftermath of the 2007-08 financial crisis and the resulting financial constrictions felt by governments around the world. Though last week’s pledges will still need to be underpinned by separate bilateral agreements, the new accord is being lauded as a major step forward on the issue.
The new pledges were made at the annual meeting of an OECD-organized grouping known as the Global Forum on Transparency and Exchange of Information for Tax Purposes. At the meeting, in Berlin, the forum’s 123 members also formally endorsed a new OECD blueprint, known as the Common Reporting Standard, detailing what information will be collected, by whom, and how it will be exchanged.
Yet the list of those asked to participate in the new pledging includes almost solely developed countries or known tax havens, which rich governments have been particularly keen to address. This is a cause for concern for some, given that the impact of illegal financial dealings is felt particularly by weaker economies.
“The new OECD standard on automatic information exchange is a big first step towards tackling illicit financial flows,” Andres Knobel, an analyst with the Tax Justice Network, a British advocacy group, said in a statement.
“However, serious obstacles to the inclusion of developing countries and a number of unresolved loopholes will prevent its effectiveness, allowing rich individuals with plenty of options to avoid reporting.”
Selected Invitations
While the Global Forum on Transparency includes 123 members, just 95 of these were asked to take part in the new automatic exchanges. And just one of those, the Pacific island nation of Vanuatu – widely known as a tax haven – is considered by the United Nations to be a least developed country.
OECD officials say that many developing countries weren’t invited to take part in this initial round of pledging due to concerns over institutional capacity.
“Under the current agreement, tax-haven countries that don’t have an income tax for their own people don’t have to reciprocate this information,” Heather Lowe, senior counsel with Global Financial Integrity (GFI), a Washington-based watchdog group, told IPS.
“While a portion of illicit financial flows is driven by tax evasion, much of it is also propelled by other crimes such as drug trafficking, sex slavery, corruption and fraud,” Lowe says.
Starting With Africa
The Global Forum says it wants to bring as many developing countries as possible into the new exchange system, and maintains that multiple initiatives are currently underway to do so. Last week, the grouping announced the most significant of these, a project aimed at strengthening outreach and capacity on the issue in Africa.
The African Initiative, overseen by the Global Forum, the World Bank Group and others, will initially focus on 17 countries, around a third of the continent. Yet an OECD factsheet says this number could be “significantly increased” through the three-year program.
As yet, there is no parallel initiative in Asia or Latin America, though the Global Forum says such projects could still be created.
