Tax revenues are escaping from poor countries. Developing countries should be allowed to participate in deciding on international tax rules.
of the UN last year, the member states unanimously approved the resolution presented by African countries on strengthening international tax cooperation in the UN. It means that power in the development of tax legislation would be distributed more evenly between different countries than at present. Currently, the development of tax rules is led by the OECD, a cooperation organization of industrialized countries.
This fall, the UN seems to be hiding the implementation of the resolution. The next steps of the UN resolution may mean an intergovernmental tax body to be established under the UN and a UN tax agreement legally binding on all countries, or some much looser cooperation model.
of the UN there is reason to strengthen its role in tax matters. The current international tax system has not managed to develop sufficiently along with the restructuring of the global economy. The electrification of trade, the growth of the power of large companies and the large role of financial services have made international money flows difficult to monitor. Operating profits are diverted to countries with low taxation, in which case the countries where the profits are actually generated are left without the tax revenues that belong to them. The beneficiaries are especially large companies that strive to minimize their taxes and use their interests to defend strong influence work in industrialized countries.
Making taxation more efficient would bring more tax revenue to industrialized countries as well as developing countries. For the latter, it is a matter of destiny: developing countries need tax revenues to reduce poverty and to cope with the food and climate crisis.
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Operating profits are directed to countries with low taxation.
In the least developed countries, the amount of tax revenue carried by the government in relation to the gross national product has grown slowly. Taxable income is constantly escaping to countries with a higher income level. The reasons for the weakness of taxation are partly internal to the states, examples being the inefficiency of tax administrations and the large informal economy. However, it is largely about loopholes in international tax legislation. The lost tax revenues are taken away from the basic services of society.
The scale of the lost tax revenue is indicated by, for example, the estimate presented in the Facti panel report published by the UN in 2021: worldwide, the amount is approximately 500–650 billion dollars per year.
Negotiations In order to strengthen the role of the UN, they highlight the bias of the decision-making power regarding tax policy. The economic organization OECD is mainly a forum of rich countries, with only 38 member countries. For example, the Netherlands and Luxembourg, which are known as tax havens, participate in its decision-making.
However, the OECD has acted proactively and opened participation opportunities for countries outside the organization as well. In addition, the OECD has been looking for ways to tackle the erosion of tax bases, corporate profit shifting and promoted measures to combat tax evasion. Developing countries have also benefited from these measures, such as the exchange of tax information.
The direction of the reforms is in the right direction, but according to Ataf, for example, the cooperation forum of African tax administrations, the opportunities for influence of developing countries have remained limited. In addition, Ataf estimates that the reforms made by the OECD do not effectively protect the tax bases of African countries from aggressive tax planning: multinational companies still have incentives to transfer profits outside the continent.
Finland vote in the UN as part of the EU. Finland has the opportunity to influence the fact that the EU’s internally fragmented position would lean toward strengthening the UN’s role in eradicating tax evasion.
The program of Petteri Orpo’s (kok) government does not take a direct position on the subject, but the government generally wants to strengthen multilateral international law. Basic Finns and the current Minister of Foreign Trade and Development Ville Tavio (ps) have previously proposed that illegal capital flight from developing countries to rich countries should be curbed. Now Finland has the opportunity to move from words to actions.
Outi Hakkarainen is an expert at Fingo, the umbrella organization of development organizations. Niko Humalisto is an expert at the Finnish Broadcasting Association.
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