It is strangely fortuitous that the Panama Papers exposé, revealing how billions of dollars have been hidden by wealthy figures, has happened just before an important discussion involving governments and civil society on how to finance the Sustainable Development Goals (SDGs).
The discussion will be held from April 18-20 in the United Nations' Economic and Social Council (ECOSOC) as part of the Financing for Development (FfD) process. The outcome document of this meeting will feed into the High Level Political Forum (HLPF), which is the central UN platform tasked with reviewing the SDGs, and will result in a Ministerial Declaration which will be binding on countries.
In the previous FfD in Addis Ababa, one of the key issues discussed was that of an intergovernmental tax commission. The demand by developing countries was that the UN Committee of Experts on International Cooperation in Tax Matters be upgraded into an intergovernmental tax commission. The main reason for this demand was that it would end the monopoly of rich countries in setting international tax norms, which is presently done through the OECD and works to the detriment of poor countries.
An intergovernmental tax commission in the UN, with its universal membership, would give all countries an equal say in the decision-making process and would be essential to creating a fairer global tax system.
The European Network on Debt and Development has listed ten reasons why such a tax commission is necessary. In the wake of the Panama Papers, one reason that assumes significance is that it would enable fair, globally coordinated and consistent action against tax havens, something which cannot be effectively done in the present system where countries use the method of blacklisting based on arbitrary and inconsistent criteria. An intergovernmental tax commission in the UN, with its universal membership, would give all countries an equal say in the decision-making process and would be essential to creating a fairer global tax system. Developing countries would then stop losing money and would be able to raise more of the public funds necessary to implement the SDGs. This is the essence of the issue and more reasons why such a commission is necessary can be found here and here.
The movement for creating such a commission has overwhelming support among the developing world and was even included in the draft outcome declaration of the previous FfD conference. However, the rich countries succeeded in keeping it out of the final declaration. The upcoming ECOSOC meeting now provides an opportunity to revive this demand. It is therefore important to know the legal procedure involved in creating such a body.
Legal procedure involved
The intergovernmental tax commission (henceforth referred to as Commission) must clear two hurdles to become a reality. It requires i) a resolution from the ECOSOC and ii) budgetary clearance from the General Assembly.
The Commission would have the statutory status of a subsidiary body under the ECOSOC. Such bodies are either created ex nihilo ('out of nothing') or are upgraded from existing ones. In either case, a resolution is required. For example the Committee on Economic, Social and Cultural Rights was established by resolution E/RES/1985/17. Similarly, the Committee of Experts on Public Administration was upgraded from its prior avatar as the 'Group of Experts on the United Nations Programme in Public Administration and Finance' through resolution E/RES/2001/45.
The Commission will require an upgradation and therefore a resolution in its favor. Such resolutions are passed in substantive sessions. As per article 67 (2) of the UN Charter, ECOSOC decisions and resolutions require a majority of those present and voting. It must be kept in mind that under rule 60 (2) of the ECOSOC's rules of procedure only affirmative and negative votes can be cast and abstentions are recognised as not voting.
The proposal to upgrade the Commission must state what exactly it will be transformed into. Therefore it must detail changes in membership, number of working days, etc. As these changes have an impact on the resources required to run the body, it must be accompanied by a statement of how much it will cost, ie a programme budget. Under rule 31 of the ECOSOC's rules of procedure, this is calculated by the UN Secretariat. The Secretary General can also make recommendations to the Council on how to better implement the proposal, although this is not binding. Under rule 31 (3), once the budget estimate is prepared by the Secretariat, the President of the ECOSOC can invite discussions on the proposal. If the proposal is accepted, the Secretary-General makes appropriate recommendations in the biennial programme budget and medium term plan presented to the General Assembly.
Although taxation is seemingly arcane and esoteric, the reality is that it is as political as any other matter, perhaps the more so owing to the vast sums of money involved.
This leads to the second hurdle the Commission must cross: approval by the General Assembly. Programme Budget Implications (PBI) of resolutions are given to the General Assembly's Administrative and Budgetary Committee (also known as the Fifth Committee). Under rule 102.4 of the Financial Regulations and Rules of the UN, in case the resolution is already passed by the ECOSOC, then the PBI is presented as a revised estimate. The Fifth Committee makes recommendations on the PBI and forwards it to the General Assembly for approval. The UN's budgetary process after resolution 41/213 lays great emphasis on consensus and seeks to avoid voting on proposals to the extent possible. Support is therefore mobilised during the 'process of informals' in the Fifth Committee. Once consensus is established, voting is almost always unanimous. Thus, after General Assembly approval is received, the process is complete and the intergovernmental tax commission can begin functioning.
A draft resolution on upgrading the Commission (E/2010/L.10) along with its PBI was already presented by Yemen on behalf of the G77+China in the ECOSOC's 2010 June-July substantive session. It contains details on the Commission's structure and function and represents the consensus of the developing world. With appropriate modifications, it can be used once again by developing countries to push for the Commission's creation.
The entire process is deeply political. Although taxation is seemingly arcane and esoteric, the reality is that it is as political as any other matter, perhaps the more so owing to the vast sums of money involved.
Political strategies that can be adopted
An ideal scenario for creating the Commission in the present context would be as follows:
i) the April FfD in New York gives an outcome declaration reviving the call for the Commission
ii) the July High Level Political Forum on Sustainable Development, which is the next substantive session of the ECOSOC, gives a resolution setting up the Commission
iii) the Commission's PBI is cleared by the General Assembly, presumably in December 2017 for the biennium budget of 2018-19
At each stage of this process, there is likely to be stiff resistance from the rich countries. It is therefore important to examine what possible forms of resistance can arise and how they can be countered.
[T]he existing OECD international tax system is innately unjust and promotes the robbery of poor nations
Broadly speaking, two possible strategies may be used by the rich countries. The first is that the OECD countries may begin hyperactively selling the Base Erosion and Profit Shifting (BEPS) system as the solution to all the problems in the international taxation system. They may argue that an intergovernmental tax commission is not only unnecessary but that developing countries lack the 'expertise' to be a part of it.
The second is that the OECD countries may threaten the poor countries, particularly African and island nations, with cuts in Overseas Development Assistance (ODA) if they support the Commission.
Both these strategies can and must be countered. To counter the first strategy, the responsibility lies squarely with civil society, particularly of the OECD nations. They can point out that a) the existing OECD international tax system is innately unjust and promotes the robbery of poor nations b) the money accrued to the rich nations does not trickle down to the citizens but goes into the pockets of wealthy corporations, amplified by austerity policies. In this manner, public opinion can be mobilized such that the political support which the MNC lobbies receive weakens.
The logic that an enlightened few be allowed to benevolently govern the rest for their own good must be called out for what it is - quintessential colonial reasoning.
Regarding the OECD's BEPS initiative, it must be made clear that while it is a welcome addition to the ongoing international tax reform process, it cannot be a substitute for a tax system in which every country--both developed and developing--have a say. The logic that an enlightened few be allowed to benevolently govern the rest for their own good must be called out for what it is - quintessential colonial reasoning.
The second strategy of threats through ODA cuts, while more blunt and crude in its application, is actually the more dangerous and effective one. Here three nations have a key role to play - India, Russia and China. They can reach out to the threatened countries, particularly the island states, and assure them that they will provide the ODA losses incurred if the OECD nations pull out. This will have strong geopolitical significance and will hopefully ensure that the political backing necessary to see the Commission through remains intact. As informal consultations have begun already, this strategy can be immediately put into action.
Conclusion
The Panama Papers expose is a crisis for those who benefit from the weaknesses of the present international tax system and an opportunity for those who are its victims. It is once again starkly clear that the status quo is unacceptable and that a new system must be created, one that works for all and in which all have a say.
The OECD countries, by continuing to resist it, are fighting a losing battle and will end up on the wrong side of history. They must realise that they are defending a system that directly facilitates the creation of Panama Papers and acts in favor of the immense global inequality in the world today. They must give up this futile and inhumane resistance, motivated solely by greed.
By supporting the creation of the Commission, it would be a step on the road to redemption and towards undoing the injustices of the past. Developing countries would finally begin to have a say on how their own wealth and resources are managed. A firm foundation would be laid for the Sustainable Development Goals and the light of hope for the future would shine that much brighter.
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