Rich nations reject inclusive tax rules body

Poor countries on Wednesday failed in their push to have a say on the rules of taxation of international business in a summit held in Addis Ababa.

Instead, developed nations like the US and UK had the final say on the composition of the Organisation of Economic Cooperation and Development (OECD) - which develops guidelines for cross-border trade. The final outcome rejects the proposal of establishing an intergovernmental UN body on tax matters, and instead introduces some minor changes to the existing UN expert committee.

This means the OECD will remain the only intergovernmental body that develops and adopts global standards on tax matters. “It is a tragic day for all of us, because a global tax system where half of the world’s countries are excluded from decision-making will never be effective. As long as our governments keep failing to cooperate on tax matters, multinational corporations will dodge taxes. At the end of the day, the Addis Ababa failure will impact us all,” Tove Maria Ryding, Policy and Advocacy Manager at European Network on Debt and Development, said.

“It was a painful moment to see the developed countries celebrating the fact that nothing will change and everything will remain the same,” he added. Global civil society organisations including Nairobi-based Tax Justice Network were pushing for a broader membership of the OECD from the current composition of 34 nations. As an alternative, the CSOs had demanded that a different intergovernmental body be established under the United Nations.

The formation of such a global tax body was top of the agenda of the Financing for Development conference in Addis Ababa ending Wednesday, that was attended by top global leadership including UN Secretary General Ban Ki Moon and President Uhuru Kenyatta. “Let us put aside what divides us and overcome narrow self-interest in favour of working together for the common well-being of humanity,” Ban said at the conference, in relation to the evidently thorny issue of taxation on international business transactions.

Revenue losses

However, representatives of the rich countries successfully blocked the negotiations slotted for Wednesday afternoon. “This came down to power,” said Alvin Mosioma, Executive Director of the Tax Justice Network Africa. “The powerful simply did not want to cede one ounce of their authority to the rest of the world, and they succeeded in preserving their control.”

OECD rules are widely applied in interpreting and solving trade and taxation disputes across the World where the transactions are across different jurisdictions. Tax authorities in poor countries, like Kenya, have often found it difficult to win such disputes against multinational firms under the OECD guidelines. Various estimates have placed Kenya’s revenue losses associated with tax avoidance at more than Sh100 billion every year.