Introduction
Last week’s column reported on the Third Financing for Development Conference and the positions it took in regard to the recovery of stolen public assets. In that column I reported more or less verbatim what was agreed on at the conference. This week I will report on two related or complementary forms of corruption, which were addressed and directly linked to stolen public assets. These are taxation and money laundering. Similar to last week I shall report more or less verbatim so that readers might get a clearer insight into the positions taken by the conference.
Taxation and corruption
The Addis Ababa Action Agenda (AAAA) was very clear, it pledged to 1) reduce opportunities for tax avoidance; 2) insert anti-abuse clauses in all tax treaties; 3) enhance disclosure practices and transparency in source and destination countries; 4) ensure transparency in all financial transactions between governments and companies to relevant tax authorities; and 5) make sure that all companies, including multinationals, pay taxes to the governments of countries where economic activity occurs and value is created, in accordance with national and international laws and policies.
Furthermore, it explicitly recognized that small countries like Guyana, which rely significantly on natural resource exports, face particular challenges. Therefore it agreed to vigorously promote investment in value addition through processing of natural resources and productive diversification. In so doing it committed to address the widespread concern about excessive tax incentives, particularly in extractive industries. It collectively re-affirmed the right of every state to fully exercise its permanent sovereignty over all its wealth in natural resources and the economic activity derived therefrom. In so doing the conference positively underlined the importance of corporate transparency and accountability of companies, particularly in the extractive sectors for the future financing of development.
In order to contain corruption the AAAA urges all countries to implement measures to ensure maximum transparency. It paid special note to voluntary initiatives such as the Extractive Industries Transparency Initiative (EITI). It also committed to continue to share best practices and promote peer learning and capacity building for contract negotiations for fair and transparent concession, revenue, and royalty agreements, and for monitoring the implementation of contracts.
The AAA therefore fully committed to scale up international tax cooperation and encourage countries (depending on their national capacities and circumstances) to collaborate to strengthen transparency. In this regard appropriate policies are indicated in the action agenda. Some of these include multinational enterprises reporting country-by-country to tax authorities where they operate; access to beneficial ownership information for competent authorities; and progressively advancing towards automatic exchange of tax information among tax authorities.
Importantly, given the debates presently taking place in Guyana, it pointed out clearly that, while tax incentives can be an appropriate policy tool, it is necessary to avoid by all means harmful competition in providing tax incentives, through having countries engage in earnest discussions on their tax incentives in regional and international fora so as to avoid harmful competition with each other.
From this it follows logically that, efforts aimed at international tax cooperation should be universal both in their approach and scope. They should, at all times, also seek to take into account the different needs and capacities of all countries. From this standpoint the AAAA welcomed ongoing efforts like the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes. Indeed it committed to strengthen such efforts that aim to develop global norms on taxation.
Thus, for example, the AAAA identified the work of the Organisation for Economic Cooperation and Development (OECD) for the Group of 20 on Base Erosion and Profit Shifting; the efforts of the International Monetary Fund (IMF) on tax spillovers and capacity building; and, the initiative of Tax Inspectors without Borders of the OECD. It promised to pursue technical assistance to promote multilateral, regional, bilateral and South-South cooperation in this regard.
The AAAA also expressed support for the activities of the United Nations Committee of Experts on International Cooperation in Tax Matters particularly its ongoing work on 1) double taxation and bilateral tax treaties; 2) its dialogue and exchange of information among national tax authorities; 3) its consideration of new and emerging issues in tax matters as well as its proposals for capacity building and the provision of technical assistance. It concluded that “with a view to consolidating its work and providing positive momentum for the mobilization of domestic resources for sustainable development, as well as the Committee’s contribution to the financing for development follow-up process and the post 2015 development agenda, we decided to strengthen the work of the Committee.”
To round off these commitments the conference therefore agreed to strengthen national control mechanisms in developing countries. These include supreme audit institutions; other independent oversight institutions; participation in the budgeting process, National Budget Offices; and, transparent public procurement frameworks. These are viewed as strategic tools for reinforcing sustainable development.
Money laundering
In conclusion the AAAA identified, assessed and proposed actions on money laundering risks. As such it agreed to support measures to ensure the effective implementation of the Financial Action Task Force standards on anti-money laundering and the countering of terrorist financing. It made two central commitments in this area. First, it supported, and indeed encouraged, the call for information sharing among financial institutions to mitigate the potential impact of money laundering and financing of terrorism on global financial services Second, it sought to strengthen international cooperation and national institutions in the fight to combat money laundering and the financing of terrorism.
Conclusion
This completes my presentations on the paradigm shift in favour of the recovery of stolen public assets in financing for development. The continuation of this is to explore whether the Third Financing for Development Conference recently held in Addis Ababa, Ethiopia has achieved its primary purpose of finding means for implementing the United Nations post-2015 development agenda and its related Sustainable Development Goals. Before attending to that I shall provide a broader appraisal of the conference’s outcome document.
