The United Nations published a report by Secretary-General António Guterres today, in which he signals his support for multilateral negotiations on international tax reform under the auspices of the United Nations. This is a huge step forward for international tax justice – especially in the Global South, where countries continue to lose staggering amounts of resources from the abuse of the outdated international tax system by large transnational corporations.
International tax reform is absolutely vital for achieving economic justice in the Global South. At a rough estimate, South Africa loses between 4-8% of its GDP each year due to illicit cross-border outflows by the large multinationals and rich individuals dominating our economy. At a 27% corporate income tax rate, this amounts to losses of more than R100 billion in revenue each year. In the ongoing case against chrome giant Samancor alone, over $500mn was alleged to have been extracted from Samancor in South Africa, and sent to bank accounts in offshore tax havens such as Malta, British Virgin Islands and Dubai over the course of just a few years. These outflows rob the country of vital tax revenue needed for public services. Moreover, as we heard in the recent Global South Tax Justice School, these outflows also have the effect of perpetuating a low-wage regime in the country, as a result of reduced finances available for improved incomes and working conditions, exacerbating income inequalities. Wage evasion is the other side of the profit shifting coin. Profit shifting also reduces the resources available for the fulfilment of community development agreements such as those in the Social and Labour Plans.
It is not possible for any one country to stop all these illicit financial outflows on their own. Corporations and rich individuals are able to get away with these practices because they take advantage of loopholes in the complex network of international agreements that govern taxation, and are enabled and supported by some of the wealthiest and most powerful nations in the world.
In the past few years, there have been some significant steps towards international agreement on global tax reform. Unfortunately, this process has been run by the Organisation for Economic Cooperation and Development (OECD), a club of rich countries in the Global North – many of which are the same nations enabling corporate tax abuse today. Through the OECD, the proposed reforms have developed in a way that hands over the lion’s share of the benefits to wealthy OECD member countries – despite the fact that it is countries in the Global South who have their minerals mined, their environments damaged, and their workers exploited to create the profits in the first place!
The OECD process has proven to be one that is not transparent, not democratic, and fundamentally biased against the interests of the Global South, with their concerns reportedly being ignored and overlooked by the secretariat. Reforming the international tax framework should not further disadvantage countries in the Global South. We need a just and equitable tax deal that enables countries in the Global South to raise the revenue required to invest in public services and for a just transition to a low-carbon economy. It is for this reason that we demand that the SA government must not endorse the OECD tax deal. Additionally, we continue to echo the call for a United Nations convention on international tax reform, and therefore welcome the indication of support by the Secretary-General. For all its flaws, the United Nations is a fundamentally more transparent and democratic platform – one better suited to a project of progressive international reform than the OECD.
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