Multinational corporations are lobbying the U.N. behind closed doors to keep tax avoidance off the list of targets in the Sustainable Development Goals, say advocates of global tax reform.
Many experts cite tax avoidance by corporations and wealthy individuals as a major driver of inequality and poverty worldwide. The United Nations’ Sustainable Development Goals (SDGs), established by international consensus as a series of goals for reducing poverty and inequity, includes reducing improper tax avoidance and evasion.
Now, say advocates of transparency and global tax reforms, it appears that many large corporations, with the backing of the International Monetary Fund, are pushing the U.N. to alter its definition of “illicit flows” to only limit illegal activities and ignore legal means corporations avoid paying taxes.
Legal tax avoidance is cited by many as a major global problem that especially impacts developing countries. Corporations, such as Microsoft, often use legal means to shift profits out of countries and into tax havens or other countries to reduce their tax burden.
Tax evasion is the term used for illegal means to avoid paying taxes; many say there’s often a blurry line separating legal ‘avoidance’ from ‘evasion,’ but the impact on poor countries in lost revenue is significant. By some estimates, governments lose out on anywhere from an estimated $200 billion (if the definition is limited to avoidance) to more than $1 trillion each year (if you include evasion) in tax revenues.
Corporations successfully lobbied in the past to prevent attempts to reign in tax avoidance. Those who advocate for fairer taxation and a reduction in corporate tax avoidance and evasion say, in a pair of letters addressed to the U.N. Secretary-General António Guterres, that this new lobbying push to ‘re-interpret’ the SDGs must be rejected.
“For the U.N. to allow this global agreement to be subverted now would be a damning betrayal of that leadership and all who signed up to the Sustainable Development Goals (SDGs),” Dereje Alemayehu of the Global Alliance for Tax Justice said in a statement.
The SDGs are a series of targets meant to reduce poverty and inequity by 2030. Goals include increasing access to clean water, universal secondary education and eliminating extreme poverty. Goal number 16 calls for the reduction of illicit financial flows worldwide. Reports prepared in the run-up to the finalization of the SDGs in 2015 listed tax avoidance as an illicit flow, but it was not named specifically in the final targets.
Corporations are taking advantage of the language. The issue of tax avoidance gained some popular attention when a series of documents revealed how wealthy individuals kept money in Panama to avoid paying taxes. Tax reform advocates say the system is rigged in favor of corporations. The average citizen in a country subjected to forms of tax avoidance is hurt because the money could be used to pay for schools, roads and hospitals.
“The research and policy analysis on illicit financial flows are unanimous in including multinational tax abuses in the definition – and we also have the most robust estimates of the scale of the problem in this area,” Alex Cobham of the Tax Justice Network said to Humanosphere. “So it makes no sense, in either political or technical terms, to subvert the SDG target in this way.”
The Tax Justice Network, The Independent Commission for the Reform of International Corporate Taxation (ICRICT), and the Global Alliance for Tax Justice are concerned by the fact that the U.N. Office on Drugs and Crime is in charge of determining the definition for the illicit flows target. They say that the body does not work on taxes and appears to be vulnerable to lobby efforts by companies trying to change the rules.
The group of advocates say they have a strong case for including tax avoidance in the definition for illicit financial flows. Two major documents that informed the formation of the SDGs specifically mention the issue of tax avoidance. The Report of the High-Level Panel of Eminent Persons on the Post-2015 Development Agenda, chaired by then U.K. Prime Minister David Cameron, set up the framework for the SDGs. It names tax avoidance as an issue that must be addressed in order to realize a world free of extreme poverty.
A second report concerning illicit financial flows was used as the basis for establishing SDG 14. It too names tax avoidance and uses it in the context of the phrase ‘illicit financial flows.’
“It is clear the two documents that underpin the U.N. agreement have explicit statement that avoidance is a part of illicit flows,” explained Cobham. “I don’t think anybody can argue that what everyone agreed to is about multinational corporate tax avoidance.”
The hope is that a direct appeal to Gutteres will ensure the definition is not changed.
“We urge Secretary-General Guterres to stand up for lower-income countries against the lobbying of special interests in what we consider is a critical element of the global commitment towards eradicating poverty and transforming economies through sustainable development,” Jose Antonio Ocampo, Chair of ICRICT said.
Correction: Launguage listing specific lobbying groups involved in this issue has been removed due to the fact that the exact players involved are not known.