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DEVELOPMENT FINANCE

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HOLDING THE G7 ACCOUNTABLE

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The G7 Summit will be held this weekend - a regular meeting of the governments of the richest, industrialized countries in the world - the US, UK, Germany, France, Italy, Canada and Japan. This year’s meeting's supposed objective is “to unite leading democracies to help the world build back better from the COVID-19 pandemic and create a greener, more prosperous future.”

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As the G7 Finance Ministers’ Meeting in London concluded with exalted acclaim from its member states on the “groundbreaking overhaul” of global tax rules, movements raised alarm bells against the impact of the G7 commitment to a 15% minimum global corporate tax rate. Finance Ministers of the Group of 7 (G7) – composed of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States – meet annually ahead of the G7 Summit attended by heads of state.

“The G7 commitment setting a global minimum corporate tax rate of 15% is a highly regressive and undemocratic blow to the clamor for tax justice by peoples in the Global South,” says Lidy Nacpil, coordinator of the Asian Peoples’ Movement on Debt and Development (APMDD). “90% of the world’s population stand to suffer the consequences of a decision by the richest 10%.”


APMDD’s statement follow the report released by the United Nations High Level Panel on International Financial Accountability, Transparency and Integrity (UN FACTI) in February 2021, recommending a global minimum tax rate of at least 25-30% of corporate profits to ensure a high enough amount for equitable redistribution of recovered revenues that can be used to fund essential public services and long-term sustainable development.


“Global South countries lose $427 billion in tax revenues and 52% of their combined public health budget yearly from corporate tax abuses, striking at a critical time for fiscal systems that are at near collapse due to debt for pandemic relief and the lethal costs of the vaccine apartheid engineered by countries in the Global North,” Nacpil adds, citing the findings of The State of Tax Justice 2020, a study documenting the tremendous disparity in the impacts of corporate tax abuses on public health systems between countries in the G7 and the developing world. 


The UN FACTI Report also recommended the establishment of a tax body on the level of the United Nations where all countries are represented on an equal basis. Nacpil calls attention to the G7’s attempt to frame the agenda on global tax reform ahead of the UN Convention:“the G7’s systematic attempt to steer the direction of global tax rules to further their interests and benefits represents a blatant disregard for the disproportionate burden of foregone revenues borne by peoples in the Global South”


When asked on their proposed alternative to the G7 deal and the incoming G20 Summit, Nacpil reiterates APMDD’s longstanding demands. “We reject the rules set by an exclusionary rich man’s club’ for the rest of the world. We call on world leaders, leaders of developing countries, and civil society to fight for a just agreement through a UN Tax Convention and for an inclusive, democratic and transparent UN Tax Body.”

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The report of the High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda or FACTI Panel underscores the urgent need to address the systemic problem of illicit financial flows (IFF) which, if left unabated, will continue to widen inequalities.

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Below are quotes lifted from the FACTI Report released in February 2021. * The FACTI Panel was convened by the 74th President of the United Nations General Assembly and the 75th President of the Economic and Social Council on 2 March 2020. It was co-chaired by Dalia Grybauskaitė, former President of Lithuania, and Ibrahim Miyaki, former Prime Minister of Niger, with panelists composed of former world leaders and central bank governors, business and civil society heads and academics.**

· The (pandemic) crisis has sharpened pre-existing divides within and between countries. The impassioned declarations made at the start of the pandemic – that “we’re all in this together”– rapidly started to subside. It soon became clear that less developed countries with low tax-to-GDP ratios were worse equipped to tide their societies over the disaster. All countries were in the same storm, but they were not on the same boat. Developing countries could ill afford social safety nets, medical equipment, and vaccines, compared to developed countries.

· Inequality has risen sharply, with reports suggesting the pandemic has led to an 7% increase in extreme povertywhile boosting billionaires’ wealth by 27.5% at the peak of the crisis, between April and July 2020. Even if this result cannot be traced solely to illegal corruption and fraud, it is an alarming testament to the way the international financial system is presently skewed in favour of the wealthy, even during a pandemic.

· The UNODC (United Nations Office of Drugs and Crime) warned (in April 2020) that dramatic measures taken by Member States to stave off economic collapse, including relaxed safeguards, could present “significant opportunities for corruption to thrive”.

· The UNODC again (in December 2020) drew attention to the risk of corruption, related to emergency funding for the vaccine, including recently approved financing of US$12 billion from the World Bank, to help developing countries finance, purchase and distribute COVID-19 vaccines, tests and treatments. It warned that public procurement posed a particular risk, given the volumes of funding involved. 

· The FACTI Panel notes the estimates that the global loss to governments from profit-shifting by multinational enterprises may be $500 to $600 billion a year. This tax loss from profit shifting estimate is based on a calculation of the deviations in declared corporate profits from indicators of real economic activity, and is a rough estimation, indicative of how much revenue corporations are denying governments.

· llicit financial flows — from tax abuse, cross-border corruption, and transnational financial crime — drain resources from sustainable development. They worsen inequalities, fuel instability, undermine governance, and damage public trust. Ultimately, they contribute to States not being able to fulfil their human rights obligations.

· Concerns about illicit financial flows have been raised before. But these discussions have tended to rapidly run aground, with some vociferously focusing only on illegal activities such as bribery and money laundering, to the exclusion of tax avoidance.This fault line explains in part why there is still no intergovernmentally agreed universal definition of IFFs.

· From a legal perspective, tax avoidance utilises loopholes in tax laws, exploiting them, albeit within the bounds of legality. In contrast, tax evasion is defined as non-compliance with tax laws. However, taxpayers do engage in “aggressive tax planning”, a term which describes artificial arrangements designed to manipulate tax laws in order to achieve results that conflict with the intention of legislatures.It blurs the line between tax avoidance and tax evasion. Both aggressive tax planning and tax evasion foster inequalities, deprive countries of resources that could be used for financing public goods, and undermine trust in governance and the social contract.

· An estimated $7 trillion of the world’s private wealth is funnelled through secrecy jurisdictions and haven countries.Taking into account just one sub-type of illicit financial flows – corporate profit-shifting, or the shopping around for tax-free jurisdictions by multinational corporations – such practices cost countries where these profits are actually made on the order of $500 to $650 billion a year, according to some estimates. Turning to the illegal flows, as much as 2.7 per cent of the global GDP is laundered by criminals.And bribery of all types across the world amounts to an estimated $1.5 to $2 trillion dollars every year.While these opaque transactions occur in all countries, they have a much heavier impact on developing countries.

· Illicit financial flows represent a double theft: an expropriation of funds that also robs billions of a better future. Taking action to recover hidden outflows could reduce inequalities everywhere,improving peoples’ well-being, as well as socioeconomic and health outcomes.Turning to the illegal flows, as much as 2.7 per cent of the global GDP is laundered by criminals.And bribery of all types across the world amounts to an estimated $1.5 to $2 trillion dollars every year.While these opaque transactions occur in all countries, they have a much heavier impact on developing countries.

Echoing a proposal that developing countries have been calling for for years, the FACTI Panel recommends that an intergovernmental tax body should be established under the auspices of the United Nations. Furthermore, the FACTI Panel called for the development of a UN Tax Convention – a proposal that has previously been put forward by the Africa Group at the UN. 

It is high time for governments to act on these recommendations. It is not only a question of ensuring the fairness and effectiveness of our tax systems; it is also a question of governments being able to mobilize the public resources needed to recover from the Covid-19 crisis. 

*The full report of the FACTI Panel is available here
https://www.factipanel.org/reports

**The members of the FACTI Panel can be found here https://www.factipanel.org/panelists

Please refer to the following video for more information on IFF:  https://www.apmdd.org/programs/development-finance/iff/trade-misinvoicing-iffs-and-tax-justice-advocacy