Mr. PERRAUD, noting that it is useful to look at what has already been accomplished, said the increased tax transparency on bank accounts and digital trading has led to the identification of €30 billion of additional income for developing countries. In 2022, they received information on 32 million accounts for €2.4 trillion in value, which, in turned allowed the Forum to help many countries to benefit from automatic exchanges. In addition, it is providing technical assistance to those countries and regional organizations, he said, acknowledging that such efforts should be increased to support least developed countries. The fight against optimization is another important area of mobilization for the international community, he said, highlighting progress made through the Base Erosion and Profit Shifting Process.“The world does not have a crisis of resources; it has a crisis of sharing and managing those resources effectively,” she observed. The use of tax policy as a lever to drive the transition from fossil fuels to renewable energy sources could drastically accelerate the green transition. Highlighting the Secretary-General’s call for a large-scale Sustainable Development Goals stimulus at the global level, led by the Group of 20 (G20), to ensure all countries can access the funding needed to invest in sustainable development, she spotlighted its three elements: greater debt relief, more concessional financing and contingency financing for all in need. The Council also heard from several speakers from the United Nations Committee of Experts on International Cooperation in Tax Matters who spoke in their personal capacity. One of them said “it is anomalous” that the United Nations does not provide a forum for multilateral engagement on tax. However, it would be reckless to jeopardize current progress, he added. The Global Forum has transformed tax cooperation, he said, noting that the OECD has invited all countries to participate in its work. Yet, he added: “I also look forward to a process wherein Governments can engage together, not by invitation but by right.” Citing the carbon tax as the main instrument to reduce carbon emissions and encourage a shift to greener technologies, he emphasized that it generates additional tax revenue. However, his Government is also offering some tax incentives to push the shift towards renewables for both companies and households. South Africa is heavily dependent on coal mining for its electricity generation, he said, adding that those plants have been underperforming, which has led to rolling blackouts. Moreover, his Government has introduced incentives to help companies move towards generating their own green power, and to enable households to claim a portion of the cost of solar panels as a tax rebate, he said. Closing Remarks Mr. BRAUNER said that the United Nations is the only possible forum for inclusive and effective international cooperation on tax matters. Coordination of tax policy and administration cannot be effective if it is not inclusive. The existing regime enjoys some legitimacy, he said, but added: “We should reform it with care.” However, it is not only archaic but also insufficiently adaptable to a world where domestic economies and tax policies are interdependent. Therefore, the focus must be on the division of taxing rights, not on policing each other in a tax competition framework. No one country knows better. Only a principled approach based on a genuine agreement could work to remedy the matter. A paradigm change is needed. Mr. AXELSON, speaking via videoconference, said that, as a middle-income country, South Africa’s tax system’s primary objective is to raise revenue to fund much needed expenditures, whether they be salaries for teachers and nurses or social grants. Even though a tax system should try to be neutral, he pointed out that there are clearly instances where the market is failing and there is a good rationale for the tax system to intervene. A clear case in point is carbon emissions, he said. South Africa has a high level of carbon emissions on a per capita basis, and one of the mechanisms the Government is using to meet its international commitments to lower carbon emissions is a carbon tax, which became effective on 1 June 2019. In a country with low economic growth and exceptionally high unemployment, any tax policies that are perceived as restrictions to economic growth are strongly opposed, he observed, adding that the carbon tax rate is quite low by international standards. Ms. CORKAL recalled how during the COVID-19 crisis many Governments supported “shovel-ready” fossil projects that were already in the pipeline as a quick fix against falling gross domestic product (GDP) growth. Now, many oil and gas companies are seeing windfall profits, during an affordability crisis linked to the global energy price crisis. In many cases, countries may be subsidizing and taxing fossil fuels at the same time, for example by having low fuel prices and a carbon price. This is counterproductive and inefficient, she said. If the international community wants to create global taxation norms that are aligned with sustainability, eliminating tax-based fossil fuel subsidies is a fundamental prerequisite. The decline in fossil fuel revenues will, however, require Governments to cut spending or increase other revenue streams. Responding to the question from the representative of India, Ms. CORKAL said there is a need for both approaches: taxing consumers and taxing corporations. The tax on excess profits, however, needs to be designed to ensure that the taxes are not then passed down by corporations onto customers. In regard to staying tied to fossil fuels in times of crises, she said that the faster the world moves to renewable forms of energy, the faster it will move away from turbulent energy calamities. Closing the meeting, Navid Hanif, Assistant Secretary-General, United Nations Department of Economic and Social Development, observed that the demand for more inclusive international tax cooperation reflects deep trust in multilateral solutions. Identifying crucial issues for developing countries is the first step to effectively dealing with them. Calling for an open dialogue among Member States and other stakeholders to identify challenges to making international tax cooperation more inclusive, he stated: “This is the defining moment for improving international tax cooperation and we should use this opportunity to build a system that is owned by everyone and works for everyone.” “We have to relegitimize source taxation in the name of fairness and hope for a legitimate regime,” he continued, adding that it offers a better chance of resolution of the homeless and Stateless income problem. He also stressed that the focus needs to be on better norms, rather than capacity-building. It is in the interest of all, especially developing countries, to have an effective dispute resolution mechanism. This should be coordinated with international economic law to make it a truly international measure that will be effective and sustainable with time. Creating a framework agreement for tax coordination is essential as it is not enough to focus solely on the United Nations model. Doing things quickly and not inclusively, however, is not an option as past initiatives have demonstrated. Mr. HEINE said many central banks are warning of a coming large financial crisis hitting carbon-dependent assets. Tax policy, and more specifically extractive taxes, can help a country reduce the risk of stranded assets. The call for inclusivity was front and centre throughout the discussion as the floor opened to delegates. Representatives of many developing countries emphasized the importance of being represented on an equal footing in the global discussions on tax cooperation, while other delegates countered by stressing the need to avoid duplication. The representative of Liechtenstein noted the large number of jurisdictions that have joined the Base Erosion and Profit Shifting project, including many developing countries. Further, the Global Forum has a remarkable track record in capacity-building, she said, adding that the Secretariat must take into account existing international instruments and capacity-building processes when preparing a report on this. Duplication of efforts on this matter through numerous conventions and agreements will cause inefficiencies and fragmentation, she added. However, the representative of the European Union, speaking in its capacity as observer, said there is no need to set up additional frameworks through an intergovernmental process which might lead to competing standards at additional costs. He expressed support for the work of the OECD/Base Erosion and Profit Shifting framework and the ongoing negotiation process, notably on the two-pillar solution which has come to its final stage. The United Nations should support this process to avoid duplication of efforts and risk of inconsistent outcomes, he said, adding that while an inclusive international tax cooperation is vital, it is of the utmost importance to maximize coordination and synergy with the work of the other international bodies. However, the representative of the European Union, speaking in its capacity as observer, said there is no need to set up additional frameworks through an intergovernmental process which might lead to competing standards at additional costs. He expressed support for the work of the OECD/Base Erosion and Profit Shifting framework and the ongoing negotiation process, notably on the two-pillar solution which has come to its final stage. The United Nations should support this process to avoid duplication of efforts and risk of inconsistent outcomes, he said, adding that while an inclusive international tax cooperation is vital, it is of the utmost importance to maximize coordination and synergy with the work of the other international bodies. Carbon emission reductions for a country like Mexico, and for those of middle and lower incomes, are lower per capita, and per unit of GDP, because of high levels of poverty and growing industrialization, he continued. Mexico’s findings support the view that carbon pricing through fiscal policy, in Mexico and elsewhere, should not be restricted to highlighting explicit carbon pricing in the form of emissions trading systems or carbon taxes. Instead, it should be understood, and calculated as, the sum of excise taxes net of subsidies, carbon taxes and other forms of carbon pricing, subtracting any fiscal crediting or stimuli present. “A country should not have to choose between carbon taxation, technology-based standards, strategic public-private investments, or industrial-policy subsidies, but should use them all in the best combination possible,” he added. The representative of Singapore said that, in the last few years, developed and developing countries have invested an enormous amount of time and resources to develop the two-pillar solution. The private sector has also been widely consulted in the process. Developing a new pathway at this point could risk undoing years of hard work and may exact further demands on countries’ already limited resources. NAVID HANIF, Assistant Secretary-General, United Nations Department of Economic and Social Development, stressed the need to make international tax cooperation more inclusive and effective. The demand for more inclusive international tax cooperation reflects deep trust in multilateral solutions. Identifying crucial issues for developing countries is the first step to effectively dealing with them, he said, calling for an open dialogue among Member States and other stakeholders to identify challenges to making international tax cooperation more inclusive. Multilateral solutions should be designed through cooperation among all those who can make meaningful contributions under the United Nations umbrella, he underscored, adding that participants have shared insights and addressed possibilities of new governance structures, with some highlighting issues essential to developing countries. A representative from the International Monetary Fund said that the two-pillar agreement has the potential of moving the international tax system in a direction that makes it more robust to tax competition and profit shifting. However, it could have been designed in a way that was more favourable to the specific needs of developing countries. Further, implementing the agreement comes at considerable cost and complexity which is also a specific challenge for developing countries, he pointed out. The Special Meeting then held its second panel of the day, on “Taxation as a policy lever to advance energy transition”, moderated by Susanne Åkerfeldt, Senior Adviser at the Swedish Ministry of Finance. The featured panellists were: Dirk Heine, Global Lead, Climate Aspects of Fiscal Policy, World Bank; Vanessa Corkal, Senior Policy Adviser, Canada Energy Transitions, International Institute for Sustainable Development; Carlos Muñoz Piña, Research and Data Integrity Director, World Resources Institute Mexico; Christopher Axelson, Chief Director, Economic Tax Analysis Unit, National Treasury, South Africa; and Ligia Noronha, United Nations Assistant Secretary-General and Head of the New York Office of the United Nations Environment Programme. In that vein, respondent Tove Ryding, Policy and Advocacy Manager, Tax Justice, European Network on Debt and Development, said that for too long, global decision-making on tax has been left to non-inclusive forums and has been marked by deeply flawed and biased rules. This failure is costing Governments hundreds of billions of dollars in lost tax income every year due to illicit financial flows, including tax evasion and tax abuse by the world’s richest corporations and individuals, she said. The representative of Romania said that his country faced the discussed issues during the COVID-19 pandemic and after it as well. The energy crisis generated by the war on Ukraine has greatly impacted Romania. The so-called “end-of-history calm” is not the reality on the ground. On one hand, countries need to find solutions to so-called “dirty fuels” but on the other hand they need to address the energy crisis and not close energy flows that could feed energy demand especially at a time of crisis. There is no way for a small country like Romania to find solutions outside institutions such as the United Nations. Introducing carbon taxation by a small country like Romania is tantamount to “economic suicide” without international backing on the decision. Dirk Heine, Global Lead, Climate Aspects of Fiscal Policy, World Bank stressed that carbon taxation stands out as the most effective way to curb carbon emissions. Further, carbon taxes improve local air quality, which could help tackle the 3 million premature deaths per year from ambient air pollution in developing countries. Thus, carbon taxation is a powerful instrument to improve equity in developing countries, he said. Delegations then shared their country specific perspectives, with Romania’s delegate highlighting the great impact of the war on Ukraine on his country. While countries need to find solutions to so-called “dirty fuels”, they also need to address the energy crisis. Introducing carbon taxation by a small country like Romania is tantamount to “economic suicide” without international backing and outside institutions such as the United Nations, he asserted. The representative of Cuba, speaking on behalf of the “Group of 77” developing countries and China, expressed concern that there is no single globally inclusive forum on this matter at the intergovernmental level, and called for effective platforms to discuss tax rules. It is counterproductive to highlight the importance of domestic resource mobilization while not tackling the inability of developing countries to mobilize such resources, he pointed out. Mr. PERRAUD said that a sustainable solution is one that exists already and can be agreed upon in a reasonable time frame. “As long as we keep arguing, problems remain unresolved,” he said. Mr. PINA said it is important to consider that tax revenues can be used in many different ways, including to support industrial change and a transformation towards a decarbonized future. Also speaking today were the representatives of Bolivia, Philippines, Italy, Thailand, Spain, Canada, France, United Kingdom, Argentina, Germany, Colombia, Dominican Republic, Cambodia, Pakistan, Romania, Paraguay and Nigeria. A representative of the United Nations Development Programme spoke as well. ZAINAB S. AHMED, Minister for Finance, Budget and National Planning of Nigeria, expressed concern about the lack of inclusiveness and equal footing in the development of taxation frameworks, both in terms of the weight attributed to inputs from the developing countries, and their capacity to make such inputs. Tax cooperation architecture should address mutual accountability measures through a fair process, she said, adding that developing countries are being punished by unilateral declarations and “blacklisting by forums and bodies in which they have no voice”. Further, developing countries’ tax systems have lower capacity. Thus “easily” administered taxes such as withholding taxes need to be easier to use and more effective. In addition, given digitalization of business and transactions, it is important to consider the revenue potential from taxing automated digital services. Mr. HEINE said that, following the COVID crisis, countries will need to rebuild fiscal space, which is exceptionally hard in the aftermath of recessions. After the 2008 global financial crisis, efforts to rebuild fiscal space — by raising taxes or cutting expenditures — contributed to double-dip recessions and persistent losses of human capital, increased income inequality and fractured social cohesion. Many countries also delayed climate mitigation efforts, disrupting the path to sustainable growth. “Such policy errors should not be repeated,” he asserted, stressing that fiscal measures must be chosen carefully, balancing short-term stabilization objectives with long-term economic sustainability. Raising environmental taxes can help countries rebuild fiscal space by broadening tax bases at a time when traditional revenue sources have dwindled. Panel I Voicing concern over uneven taxation which encourages tax evasion and informality — contributing to slower productivity growth — he said that in many countries, shifting the structure of tax revenues away from income taxes towards consumption and excise taxes can raise growth. In applying this strategy, carbon taxation stands out and is the most effective way to curb carbon emissions. Highlighting development benefits of carbon taxes, he noted that by reducing hazardous air pollutants, carbon taxes improve local air quality, which could help tackle the 3 million premature deaths per year from ambient air pollution in developing countries. Moreover, carbon taxation is a powerful instrument to improve equity, especially in developing countries, he said, adding that climate-smart fiscal policy measures would help set countries on a sustainable growth path. LACHEZARA STOEVA (Bulgaria), President of the Economic and Social Council, said today’s panel discussions will focus on promoting inclusive and effective international tax cooperation, as well as taxation as a policy lever to advance energy transition. She said that it is critical to consider how tax policies can support developing country energy transition efforts. Today’s session will also seek to identify the most significant tax and domestic resource mobilization considerations for energy transition in sectors such as extractions. She also encouraged participants to contribute their national perspectives. The representative of the United States said that the Secretary-General’s report on international tax cooperation must analyse all of the existing efforts and take into account ongoing efforts to identify the areas in which the United Nations can add the most value and not undermine the other work. Highlighting the work of the inclusive framework, including on pillars one and two, he said it has delivered significant results, including on issues that have been championed by developing countries. “We need to ensure that we do not undermine that progress by starting a parallel and competitive process,” he said. ALBERT R. CHIMBINDI (Zimbabwe), Vice-President of the Economic and Social Council, said any measures to address the climate situation needs to consider the issue of energy access, an essential enabler for sustainable development. Fossil fuels continue to be a major driver of economic growth, especially in developing countries. Renewables, on the other hand, account only for about 17.7 per cent of global energy consumption. Emphasizing the importance of effective support to meet the ambitious targets towards net zero greenhouse gas emissions, he observed that developing countries bear the pressure of balancing and integrating revenue generation with climate considerations. Taxes can also drive innovation and investment towards low-carbon technologies and products while discouraging the use of fossil fuels and other high-emission options. Moreover, through well-designed tax policies, Governments can create incentives that encourage sustainable practices and technologies. Tax policies must be coordinated at the international level to prevent adverse effects, such as tax evasion or carbon leakage, but they must also promote a level playing field for businesses operating in different jurisdictions. The work of the Committee is essential in reviewing and reflecting on adequate tax policies that can assist countries’ efforts in transitioning from fossil fuel energy to renewable and environmentally friendly sources, he said. Echoing those sentiments, Mathew Gbonjubola, Co-Chairperson of the United Nations Committee of Experts on International Cooperation in Tax Matters to the Economic and Social Council, detailed that body’s work to help countries mobilize domestic resources for sustainable development by broadening their tax base, strengthening tax administration and helping curb tax avoidance and evasion. Taking into account the needs and capacities of developing countries, the Committee has expanded its work programme to address policy concerns related to wealth taxes and indirect taxes, including health taxation. He drew attention to numerous easy-to-administer approaches adopted by the Committee, including the United Nations Model Double Taxation Convention. AMINA MOHAMMED, United Nations Deputy Secretary-General, noting the dramatic widening of the inequality gap, said that economic growth has slowed while Governments continue to fight inflation through interest rate increases and other monetary tightening measures, which puts additional stress on vulnerable countries. As well, 40 per cent of developing economies are suffering from severe debt problems, she said, underlining the importance of strengthening international tax cooperation. Tax-related illicit financial flows, tax avoidance and tax evasion are draining much needed resources and some tax regimes undermine long-term sustainable development, including by providing fossil fuel subsidies with unfair tax breaks. Promoting fair international tax systems that can set societies up for success is crucial. “The world does not have a crisis of resources; it has a crisis of sharing and managing those resources effectively,” said Amina Mohammed, United Nations Deputy Secretary-General. Given that 40 per cent of developing economies are suffering from severe debt problems, it is crucial to strengthen international tax cooperation, she underlined, noting that tax-related illicit financial flows, tax avoidance and tax evasion are draining much needed resources and undermine long-term sustainable development. Calling for fair international tax systems, she emphasized that the use of tax policy as a lever to drive the transition from fossil fuels to renewable energy sources could drastically accelerate the green transition. Ms. STOEVA, expressing her appreciation to all speakers, also noted the active engagement by officials from tax administrations, ministries of finance and permanent missions in New York, plus a wide range of other stakeholders. Today’s discussions have provided options and ideas on how to address the challenges and opportunities in promoting inclusive and effective international tax cooperation at the United Nations, she said. Speakers of civil society and international organizations, including the Digital Cooperation Organization, South Centre and the International Chamber of Commerce also spoke today. Carlos Muñoz Piña, Research and Data Integrity Director, World Resources Institute Mexico, emphasized that a country should not have to choose between carbon taxation, technology-based standards, strategic public-private investments, or industrial-policy subsidies, but should use them all in the best combination possible. Carbon pricing should be calculated as the sum of excise taxes net of subsidies, carbon taxes and other forms of carbon pricing, subtracting any fiscal crediting or stimuli present.
Inclusive International Tax Systems Crucial in Strengthening Developing Countries’ Fiscal Policies, Green Transition, Speakers Tell Economic and Social Council
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