28th Feb 2024

EU under pressure to change tack after UN tax defeat

  • The EU's finance ministers are set to discuss the Brussels response to the creation of the new authority on Monday and Tuesday (Photo: DFATD | MAECD)
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EU ministers face a race against time to decide on whether to work with a new UN authority on international tax policy, that many believe could superceed the work done by the Paris-based Organisation for Economic Co-operation and Development — most of whose members are EU states.

The EU and the UK were blindsided by a vote to establish a UN tax convention, tabled by Nigeria on behalf of the Africa Group at the UN, which was passed by 125 votes to 48.

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The bloc's finance ministers are set to discuss the EU response to the creation of the new authority on Monday and Tuesday (15 and 16 January). However, they are unlikely to have made a decision before 15 January — the deadline for submitting nominations for members of the committee that will steer negotiations.

The first meetings on the new authority and its mandate will be held in New York in late February.

Some officials say that the EU cannot boycott the process because this would be taken as a sign of bad faith by developing countries who accused the EU and UK of 'neo-colonialism' during the debates in New York that preceded the UN vote.

Developing countries have become increasingly critical of the OECD — which does not have any African members — and its slow progress on international tax policy, pointing to the $50bn [€45.6bn] that is lost to their treasuries in illicit financial flows each year.

Countries from south-east Asia, South America and the Middle East voted en bloc with African states to support the resolution.

But geopolitics was also a factor. Russia, Belarus, China and North Korea — not normally associated with commitments to financial transparency — were among those to support the new UN body to score a political win against the West.

Duplicate OECD work?

Officials involved in the talks in New York ahead of the vote say that European states, and France and the non-EU UK in particular, were outmanoeuvred by African officials on the detail, and fell back on arguments that G77 concerns could be addressed via more aid and support for capacity building.

The main argument by the EU, US, UK and Japan against a UN tax authority is that it would duplicate the work of the Paris-based OECD. Others contend that the UN lacks the technical expertise or resources to perform the role.

Back in November 2022, countries agreed by consensus at the UN to lay the groundwork for the creation of an intergovernmental UN Tax Process.

EU finance ministers recommended in October that the bloc support "working at the UN on a non-binding multilateral agenda."

A more ambitious process setting binding rules "would risk leading to duplicate ongoing or completed international work linked to the existing global tax framework… This would be time-consuming for all jurisdictions," said EU finance ministers.

That stance contradicted a European Parliament resolution last June which supported a UN tax convention to tackle tax evasion and illicit financial flows following the revelations in the 'Pandora Papers'.

France and Germany against

France, which hosts the OECD and over 3,000 of its employers in Paris, has been leading EU opposition to the new tax body, along with Germany.

Any agreements that emerge from the UN convention process will rely on the buy-in of national governments if they are to be enforced in law,

Insiders say that Brussels is split, though the bloc's official position is still that the OECD is the best forum for international tax policy.

Central and eastern European countries complain that the corporate tax rules set by the OECD are biased in favour of countries where large multinationals are headquartered such as the US, UK, France and Germany.

For their part, a group of Scandinavian and south European countries have expressed their dissatisfaction with the level of corporate revenues currently being generated.

"During the negotiations at the UN, we heard that the EU was trying to kill the process and not negotiating in good faith. This is deeply concerning, not least since the EU is officially committed to global tax cooperation and actually has a strong economic interest in more global action to stop tax havens," Tove Maria Ryding, tax coordinator at the European Network on Debt and Development (Eurodad), told EUobserver.

"A UN Tax Convention would be the first truly global agreement to stop international tax dodging, and we think the EU should welcome it — not boycott it," she added.

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