Standoff in Addis Ababa over push by G77 to upgrade UN tax body

President Kenyatta addresses delegates during the UN Conference on Financing for Development in Addis Ababa. [Photo: Courtesy]

President Uhuru Kenyatta has joined other global leaders in an ongoing summit in Addis Ababa, Ethiopia, which could create an all-inclusive agency to monitor international trade and tackle tax avoidance.

International civil society organisations are spearheading the inter-governmental tax body agenda expected to replace the Organisation for Economic Co-operation and Development (OECD), which they accuse of being unfriendly to developing nations.

OECD is made up of only 34 developed economies but designs the rules that are applied in all international transactions and in the process, hurts poor countries like Kenya. “Governments have a chance this week to create an equitable body to tackle the problems of tax dodging and corporate opacity,” said Pooja Rangaprasad of the Financial Transparency Coalition.

The main sticking point in Addis Ababa is a standoff over push by the G77 developing countries to upgrade a UN tax body, which they hope would set new global rules to crackdown on tax dodging, mainly by multinationals.

The proposal is opposed by the rich countries of the OECD, which drew up the current tax rules.

Unjust system

Rangaprasad warned that if the status quo remains, and standards continue to be set by the OECD, countries will be stuck with an unjust system that can’t solve the problem of illicit financial flows. “The rest of the world will remain on the outside looking in,” said Rangaprasad.

A new set of rules for international trade could be significant, especially for tax authorities in developing countries where multinational firms have been accused of profit shifting and dodging taxes.

Kenya Revenue Authority (KRA) is currently locked in hundreds of legal battles relating to tax avoidance by big companies, mostly owing to vagueness on guidelines.

Civil societies attending the Financing for Development Conference in Addis Ababa expect that a new tax body that is more inclusive would draft friendly guidelines and enable poor countries to tackle tax avoidance.

Since multinationals operate is various jurisdictions with different laws, it is the OECD standards that are used whenever there is a taxation dispute and suspected profit shifting.

Tax Justice Network-Africa Executive Director Alvin Mosioma said State representatives now have the chance to create an inter-governmental tax body under the UN that would include more than 100 developing countries excluded from the decision making process.

“African nations are at the epicenter of the crisis of illicit financial flows, yet they are not even in the room when decisions are being made,” Mosioma said, adding, “A global tax body is one important step in fixing this global problem.”

Self-interest

However, speaking during the opening of the conference Monday, UN Secretary-General Ban Ki-moon said world leaders must put aside “narrow self-interest” to break a deadlock over how to finance the organisation’s bold new global development agenda. “Let us put aside what divides us and overcome narrow self-interest in favour of working together for the common well-being of humanity,” he told the delegates.