Ecuador to propose global tax regulation system to stop tax evasion

Sep 21, 2016 | 0 comments

By Frederika Whitehead

Ecuador will propose the creation of a global tax regulator at the United Nations general assembly session this week.

Ecuador's Guillarem Long

Ecuador Foreign Minister Guillaume Long

The IMF estimates that tax dodging costs developing countries more than $200bn (£152bn) a year – much more than the total global aid budget. The proposed UN body would be made up of member states and be empowered to clamp down on tax-evading multinationals, shut down tax havens and expose the corrupt elite who are squirreling their money away to avoid paying tax.

This is not a new idea. The same proposal was blocked at a UN meeting to discuss finance for development in Addis Ababa last year. Global tax rules are handled by the OECD, and Europe insisted that it should stay that way. But speaking from Quito before the UN general assembly, Ecuador’s foreign minister, Guillaume Long, said he was confident things would be different this time.

“The Panama papers have shone a spotlight on the murky world of tax havens,” he said. “All the countries are talking about it. When I have meetings with foreign ministers we always discuss the issue … A year ago that wasn’t the situation.

“It’s a major issue for my counterparts in their respective domestic politics … and in terms of the way they look at global governance.”

Long said countries had different reasons for wanting greater transparency about tax havens. For EU and North American countries there is a concern about their role in dispensing funds for terrorism or in concealing the profits of violent crime. While in the global south, leaders are more concerned with economic justice and the development that greater tax receipts could fund.

Some dismiss the proposal as idealistic after it was so thoroughly quashed last year. But Long pointed out that Ecuador had proved itself capable of similar feats of political persuasion in the recent past. It has clamped down hard on tax avoidance by its own citizens – tripling its tax take in the process, he said. And it successfully led the charge to create a binding UN instrument to bring transnational corporations to account for human rights violations.

“The whole UN system is based on bringing states to account. But in today’s world it’s not just states that violate human rights,” said Long. “We in Ecuador know this. We’ve had terrible human rights violations by multinationals.”

Last year Ecuador was given the mandate to preside over a committee which is drafting a law to hold multinationals that commit human rights offences to account.

Long admitted that sufficient support for the creation of a new UN body wouldn’t appear overnight but, he said, “there is a growing consensus that tax havens need to be tackled”. He thought this week’s UN meeting would be the “launch of the final chapter in this fight. It’s been an ongoing battle, but I think the time is right.”

Many studies have underlined the positive impact that shutting down tax havens could have for the developing world. Oxfam estimates that wealthy individuals hold $7.6tn offshore, and that the tax on that wealth could amount to $190bn annually.

The Economic Commission for Latin America and the Caribbean (Eclac) estimates that Latin America loses $340bn a year through tax evasion.

Ecuador’s own clampdown on tax avoidance has been a success. Long said that in 2006 tax returns amounted to $3.5bn a year, while at the close of 2014 they were up to $14.5bn.

He stressed that the vast majority of the increase in returns is due to better collection rather than tax increases: “92% of this increase is from greater efficiency, through greater transparency, and through fighting tax evasion and tax dodging.”

Setting up a UN body to regulate tax should help end the destructive competition between countries. There has long been a race to the bottom in the tax game, with countries offering ever lower tax rates, tax breaks and greater secrecy in order to attract multinationals and wealthy individuals.

Long said that some countries have been victims of their own underdevelopment. “Some island countries [that] have resorted to practices that are harmful to everybody … are themselves not necessarily extremely wealthy.”

He admitted that getting those countries on board would be challenging. “We need to plan a transition for them to move away from certain financial practices and … we need to convince them that we are not trying to threaten their economy or prosperity.”

If Long is able to secure a vote on the issue, it is likely to be decided on a simple majority. There may well be opposition: it was the EU who rejected the idea of a global tax body at Addis Ababa in 2015, with the UK and France especially vocal against it.

For Long to secure victory from last year’s defeat he will need to make sure his own record on tax havens is exemplary: he is keenly aware that other politicians have not covered themselves in glory. To that end, Ecuador has launched its “ethical pact” – a roadmap showing how countries can rebuild the trust between citizens and politicians.

As part of this, in February next year Ecuador will hold a referendum allowing its citizens to determine whether its politicians and civil servants should be prevented from holding assets offshore.


Credit: The Guardian,


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