Change your mindset and change the world is a well-known adage.
During the last week of November 2022 and the last week of January 2023, the United Nations, and the Court of Justice of the European Union, both ushered in a decided shift in mindset as to what is now possible, in the standard-setting community.
Led by the Federal Republic of Nigeria, the African Group of fifty-four (54) nations at the United Nations (UN), successfully presented a new resolution that was accepted by UN members to ensure more inclusiveness in the formulation of rules that govern international tax cooperation and the effectiveness with which they are implemented.
In effect, this historic resolution moves international tax policy-making away from the long-standing traditional control of the Organisation for Economic Co-operation and Development,(OECD) which was established and is managed by developed countries such as the United States, France, Italy, Canada, United Kingdom, Japan and the European Union, to the UN.
A Media Release by the African Tax Administration Forum (ATAF) two days after this announcement noted that, “the current global tax rules do not result in a fair allocation of taxing rights between source and residence countries to the detriment of source countries and do not effectively address the risks of Base Erosion and Profit Shifting (BEPS) in low-capacity countries”
UN Secretary General Antonio Guterres said that “Tax norms need strengthening to address digitalisation and globalisation in ways that meet the needs and capacities of developing countries. A global convention on tax with universal participation may help with this effort.”
The ATAF Press Statement poignantly noted that “the establishment of a Member State-led, open-ended, ad hoc intergovernmental committee to recommend actions on the options for strengthening the inclusiveness and effectiveness of international tax cooperation provides the opportunity to take forward and build on the work of the UN Committee of Experts on International Tax Cooperation and significantly enhance the role of the United Nations in the global standard-setting process”
This was no doubt, a bold move by the Federal Republic of Nigeria and the African Group at the UN, which was underpinned by partnership with the African Union Commission and the establishment of the African Union Specialised Technical Committee, Subcommittee on Tax and Illicit Financial Flows (IFFs). The resolution directly challenged a similar project by OECD members.
Further support was reinforced by the Chairman of the African Union High-Level Panel on Illicit Financial Flows, former South African President Thabo Mbeki, who had canvassed for the adoption of the resolution.
Undoubtedly, the catalyst and motivation were the considerable benefits that will accrue to the African continent and its people, including the potential of the African Continental Free Trade Area Agreement (AFCFTA).
A vision that will connect 1.3 billion people across fifty-five (55) countries, to create the largest free trade area in the world, with the potential to lift millions of citizens out of extreme poverty, reconfigure economies and markets, boost output, diversify exports, fuel trade, and attract and maintain foreign direct investment.
The UN General Assembly’s Finance Committee voted unanimously on the resolution and calls for “developing an international tax cooperation framework or instrument that is developed and agreed upon through a UN intergovernmental process”
Victory however did not come easily. The framers of this milestone resolution and their supporters faced intense lobbying by the OECD block on the margins and behind the scenes.
OECD countries forcefully sought to reject the implication that the current arrangements were not highly inclusive, and warned that it would be unproductive, duplicative of resources and their work, and negate and undermine the progress being made, were the UN to proceed as intended.
What was missed, however, was the OECD’s failure to deliver in a timely fashion, an international treaty on tax, and the need to place appropriate weight on the interests of developing countries. Ipso facto, the UN was seen as a much better forum in these circumstances to deliver success.
So, the call for a more inclusive, democratic process through the UN’s global platform held sway, buoyed by the strengthened participation of African countries in tax cooperation efforts through capacity building, and significant investment in tax policy and administration.
Nonetheless, the African Group must remain alert and must lobby without ceasing to ensure that the unanimous consensus with which this resolution was passed is sustained over the long term.
Other standard-setting bodies should take note and be proactive about the need for change based on the notion that democracy and equitable inclusion are increasingly gaining currency and respectability.