What Hope for Global Tax Justice?
| Author | David McNair,ies Lesage |
| Date | 01 April 2010 |
| DOI | 10.1111/j.2041-9066.2010.00013.x |
| Published date | 01 April 2010 |
| Subject Matter | Foresight |
which in 2007 amounted to US$104
billion.
The fi nancial crisis heralded a
change in rhetoric among industr-
ialised countries. Financial secrecy
and light-touch regulation, we were
told, would be tolerated no longer.
‘The old order is dead, the Washing-
ton consensus is over’, pronounced
Gordon Brown at the London G20
Summit.
If the problem is secrecy, the G20
commitment to clamp down on
havens has set in motion a process
to ensure that fi nancial information
is collected and shared effectively
so that a tax dodger cannot hide
money from the country in which
the money was made.
But the proposed model for dealing
with this problem, based on stand-
ards developed by the Organisation
for Economic Co-operation and
Development (OECD), is viewed by
many as piecemeal and ineffective.
On the basis of the G20 proposals,
the OECD published a list of unco-
operative jurisdictions determined by
their willingness to sign 12 arbitrarily
selected information-sharing agree-
ments. Those unwilling to sign these
agreements would, it was promised,
face sanctions. Within a number of
days, the blacklist was empty. Yet al-
most none of these agreements were
signed with the developing countries
that did not have the economic or
political muscle to demand them.
This approach targeted small island
havens and ignored the thorny is-
sue of fi nancial secrecy in the City
Foresight
What Hope for Global
Tax Justice?
2009 was the year when inter-
national co-operation on taxa-
tion stopped being preferable
and became vital. The fi nancial crisis
highlighted the woeful inability of
individual nation states to regulate
global capital fl ows, forcing the lead-
ers of the world’s largest economies
to come together under the banner
of the G20, seeking global solutions
to global problems.
In contrast to the widely recognised
need for international co-operation,
the political reality of achieving
multilateralism on taxation remains
fraught.
A decade of rapidly increasing
capital fl ows and the cementing of
secretive tax havens as a feature
of the global economy has resulted
in an annual outfl ow of billions of
dollars from countries rich and poor
alike.
These so called ‘sunny places for
shady people’ offer secrecy to tax
dodgers and criminals, and allow
banks to hide risky fi nancial instru-
ments from the prying eyes of con-
scientious regulators. It is the secrecy
provided by these havens that ulti-
mately undermines the sovereignty
of nation states as they seek to raise
revenue. Developing countries pay
the largest humanitarian cost and
are deprived of the governance ben-
efi ts of effective taxation.
Estimates suggest that illicit out-
fl ows cost developing countries be-
tween US$350 billion and US$500
billion each year, a fi gure far in ex-
cess of the total global aid budget,
If 2009 signalled the ‘beginning of the end of tax havens’, the time for greater international tax
co-operation has finally arrived, write David McNair and Dries Lesage.
of London and the US states of Dela-
ware and Nevada.
Following high-profi le criticism –
including from the UN commission
on the reform of the international
monetary and fi nancial system led
by Nobel laureate, Joseph Stiglitz
– the G20 have begun to talk of a
multilateral information exchange
agreement that includes all coun-
tries.
So what are the prospects for
progress?
In reality movement at the G20
on this issue is likely to become less
rather than more likely. Previous at-
tempts to deal with tax co-operation
at the United Nations have been
hampered by vested interests seek-
ing to maintain the status quo.
The UK government, under
pressure from civil society, has
spearheaded the call for a devel-
opment-friendly tax agreement at
the G20. Yet a victory for the Con-
servative party in the 2010 general
election would likely limit the UK’s
role in leading on tax co-operation.
Despite the claim of shadow chan-
cellor, George Osborne, that the
party will target tax evasion and
offshore tax havens, he has been
unwilling to commit to detailed
proposals. The Belize interests of the
infl uential peer, Lord Ashcroft, who
has recently been criticised for his
non-domiciled UK tax status, may
further limit the interest of the party
in pursuing this agenda.
During his election campaign,
Barack Obama spoke out strongly
Ine ective
taxation costs
developing
countries
between
US$350
billion and
US$500 billion
each year
22 Political Insight
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