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

Ineff ective taxation costs

developing countries between

US$350 billion and

US$500 billion each year

22 Political Insight

against tax havens. Yet despite the rhetoric, the US seems more interested in pursuing a unilateral approach to recovering its own rev-enue streams, rather than protecting the interests of developing countries. The US treasury secretary, Timothy Geithner, swiftly blocked an attempt by the UK government to endorse a multilateral information-sharing agreement at the G20 fi nance min-isters’ meeting in St Andrews in 2009. Given that Geithner served under the Bush administration, Obama now needs to assert more control over the fi nancial agenda. The administration itself is limited in its power: Congress has tradition-ally been reluctant to commit to any multilateral initiative that might impact upon the taxes American citizens have to pay.

The fact that the BRIC countries (Brazil, Russia, India and China) now have a seat at the table at the G20, the ‘premier forum for our in-ternational economic co-operation’, marks a watershed in the traditional power base behind the global econ-omy. This expanded forum presents both an opportunity and a challenge for progress in international tax co-operation.

China has been taking G20 sum-mits seriously, mobilising large teams, co-ordinating policy positions between ministries and undertaking considerable preparation, suggesting that there may be a ‘G2’ dynamic between the US and China.

Some analysts have suggested that the G20 may further marginalise the

interests both of the poorest devel-oping countries and of the UN as a forum for discussion of economic issues. The emerging economies are unlikely to represent the interests of the poorest countries and the onus of lobbying on their behalf has fallen to the secretary-general of the United Nations, the president of the World Bank and the managing director of the International Monetary Fund, some of the fi ercest proponents of the Washington consensus.

The 2009 Copenhagen climate change conference has demonstrat-ed developing countries’ willingness and ability to make their stand on the international stage. However, consensus among negotiating blocs on the issue of tax co-operation is unlikely. The fact that tax havens are used by many in positions of power for their own personal gain makes agreement even within nation states diffi cult. In addition, some develop-ing countries have an interest in maintaining the status quo. The very states most threatened by dangerous climate change and that were most vocal at Copenhagen often benefi t much from offering fi nancial secrecy – small island states such as the Cay-mans or Mauritius.

Yet despite these challenges, there is considerable room for optimism. More progress was made on tax haven secrecy in 2009 than at any time in the preceding decade. In 2010, the OECD is continuing to develop proposals for international tax co-operation and the develop-ing countries are beginning to work

together through initiatives such as the African Tax Administration Forum. One of the most promis-ing opportunities for progress may lie with the European Union. The Spanish presidency of the union has identifi ed taxation and development as priorities and the European Com-mission is currently drafting a com-munication on the importance of the issue for development co-operation, which could provide the impetus for a more ambitious programme at the G20 and the OECD.

Meanwhile a movement is build-ing in civil society across the globe through organisations like the Tax Justice Network, which now has ac-tive chapters in Africa, Europe and Latin America. These groups no long-er see development aid as a solution to poverty, but want to see devel-oping countries stand on their own by collecting revenue and clamping down on the tax havens which, in the words of Gordon Brown, ‘siphon money from developing countries, money that could otherwise be spent on bed nets, vaccinations, economic development and jobs’.

David McNair is Senior Economic Justice Adviser at Christian Aid (UK). He holds a PhD in Social Geography from the Queen’s University of Belfast.

Dries Lesage is is a Lecturer in Political Sci-ence at the Department of Political Science, Institute for International Studies, Ghent University.

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The Copenhagen conference demonstrated developing countries’ willingness to make their stand on the international stage

23April 2010