Civil Society Consultation for the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System
snip ~ Specific proposals included a UN Code of Conduct on cooperation in combating international tax evasion and avoidance, as well as for the establishment of an International Tax Organization under the auspices of the UN (read more about tax evasion and penalties highlighted in red)
_Excerpts from PDF ~ Link
In the wake of the global financial and economic crisis, the President of the UN GeneralAssembly set up a commission of experts chaired by Nobel Prize Laureate Joseph Stiglitz,whose mandate has been to reflect on the causes of the crisis, assess its impacts on all countries and suggest adequate responses to avoid its recurrence and restore global economic stability. The Office of the President of the General Assembly asked the United Nations Non-Governmental Liaison Service (NGLS) to consult with civil society groups across the globe and to compile their views into a single report as an official input to Commission’s deliberations
The multiple dimensions of international tax policy were treated by many contributors as a major regulatory issue, as well as a necessary redistributive instrument.
Tax loopholes translate in regulatory loopholes, as well as a massive hemorrhage of public revenue and source of global injustice. Resource mobilization through international tax cooperation was seen as all the more necessary in the current context of gargantuan deficit-funded bail outs and stimuli in rich countries and constraints on the ability of poorer countries to pursue counter-cyclical policies and maintain budgetary spending.
This included cooperation to curb or eliminate tax havens, tax evasion and transfer pricing, regional cooperation to set floors on corporate taxes, as well as various forms of international taxation (notably a currency transaction tax) that could raise significant resources as well as play a regulatory role. Some called for the creation of an International Tax Organization while significantly strengthening the UN’s work on tax cooperation in the interim.
Re-regulating Finance to Work for People and the Real Economy
Continues ...read more ..
A number of contributions identified sharp gyrations in exchange rates as a major source of instability and inequity, affecting trade relations often more fundamentally than trade determinants on the official trade agenda – calling for the UN to play a leading role in addressing this perennial issue since the collapse of the Bretton Woods system in the 1970s.
In particular, some contributions encouraged the Commission to consider UNCTAD’s recent proposal for a multilateral exchange regime to stave off currency speculation.
Regional approaches as an alternative or stepping stone to multilateral exchange rate stabilization were indeed emphasized by a number of participants, often described in the context of more comprehensive regional development agendas, including the Banco del Sur in Latin America, and regional currency arrangements and reserve pooling. Mention was made notably of the “Ecuadorian proposal,” involving intensified regional monetary cooperation towards regional exchange rate mechanisms, the pooling of reserves and their convertibility into a new regional currency.
A few participants contributed and commented on proposals for more fundamental global financial architecture reform involving the creation of a new global reserve system to anchor exchange rates, with “seigniorage” (emission) capacities, and involving symmetrical disciplines on surplus and deficit countries.
Proposals ranged from the IMF issuing Special Drawing Rights (SDRs) for financial and currency stabilization as well as development objectives, to the establishment of an Money Clearing Unit (IMCU) that only central banks would hold among nations that would abide by the rules of a clearing union system. This system would involve symmetrical responsibilities among surplus and deficit countries. Others were more circumspect about global monetary solutions. A key question in the possible move to a new system of fixed exchange rates was how the initial rate of each country would be set in the context of power imbalances associated with asymmetric currency values. Until such political obstacles could be surmounted, many preferred regional approaches, and insisted that the first line of defense for developing countries remained the effective use of capital controls (or “capital management” techniques) to manage destabilizing capital movements (including speculative attacks on national currencies), screen the quality of capital entries and prevent capital flight.
Taxes
Many of the civil society contributions approached the question of financial regulation by placing emphasis on two cross-cutting issues that are relevant to the other themes of the Commission agenda.
These are:
· capital controls (or “capital management techniques”) and
· international tax policy (ranging from international taxes on financial
transactions to addressing tax evasion, tax havens and offshore banking)
Solutions to the present crises should not be premised on re-establishing or saving a failed system, but on changing it. The UN can and must rise to this occasion. [Jubilee South]
Alongside other important regulatory instruments, capital controls can be crucial during a financial crisis. Unfortunately, the era of deregulation has made developing countries extremely vulnerable to capital outflows in a time of crisis, compounding their current difficulties. This needs to be addressed by the work of the Commission.
a) Governments should take responsibility for controlling cross-border capital flows, which must be better monitored. In particular, poorer States should not be penalized for doing so, or forced to adopt any particular economic policies.
b) Multilateral, regional and bilateral financial liberalization clauses should be revised. The use of capital controls should be relegitimised by developing countries tax policy
The multiple dimensions of international tax policy were treated by many contributors as a major regulatory issue, as well as a necessary redistributive instrument. Tax loopholes translate into regulatory loopholes as well as a massive haemorrhage of public revenue and source of global injustice.
Tax evasion, tax havens and offshore banking - A number of contributions highlighted the harmful role of tax havens and secrecy jurisdictions, notably in causing the global financial crisis.
In a world of global banks and 24 hour financial markets, regulation is only as effective as the weakest link in the chain: tax havens are the weakest link. This explains why so much of the “financial innovation” of the past two decades can be traced back to these places.
The majority of hedge funds are located in London, the Cayman Islands and the British Channel Islands. Ditto the private equity industry; the issuance of securitised debt; the re-insurance industry, and the structured investment vehicles at the heart of the shadow banking system.
Ensuring secrecy, offshore banking centres have also played a crucial role in the current financial turmoil. Not only have these centres enabled complex financial arrangements and allowed the concealment of excessive risks, but they have also contributed to international capital flight.
Billions of dollars that could have helped developing countries to mitigate the effects of the current crisis or to finance social development have been transferred to tax havens. Capital flight from poor to rich countries is estimated to range between 500 and 800 billions US$ per year.
Many contributions focused on the need for the international community to take action to limit or eradicate offshore banking and tax havens.
The fact that tax havens are on the G20 agenda is an opportunity that must be seized by the Commission to make progress on this issue…. Tax havens should be closed so as to significantly reduce illicit capital flight and tax evasion. Transition measures for affected developing countries that host them may be worth considering
Small vulnerable economies that have turned into tax havens, many with citizens who do not take any advantage of the offshore status, need support and financial assistance to diversify their income and comply with standards to prevent money laundering.
Specific proposals included a UN Code of Conduct on cooperation in combating international tax evasion and avoidance, as well as for the establishment of an International Tax Organization under the auspices of the UN.
Shut down secrecy jurisdictions, the shadow banking system and offshore financial centres (OFC) as a way to eliminate cross-border tax evasion and capital flight and limit the scope for future tax avoidance, in order to mobilise much-needed resources for sustainable development.
As first step, strong regulation on bank transfers to OFC need to be developed.
Ultimately, an international tax organization under UN auspices is needed for the democratic control of taxation, i.e. to combat tax competition, tax evasion and corrupt capital flight. As a first step, the UN Tax Committee [United Nations Committee of Experts on International Cooperation in Tax Matters] should be upgraded considerably.
The same array of proposals was echoed by other contributions, including in more specific detail:
Along with the adoption of a UN Code of Conduct on cooperation in combating international tax evasion and avoidance and putting in place an intergovernmental UN organ for International Cooperation on Tax Matters, there should be a renewed black-listing of non-cooperative tax havens, combining the work of the OECD, FATF and FSF.
It should include all States and territories, including major financial centres unwilling to agree to the automatic exchange of tax and judicial information, to abandon strict banking secrecy and to register trusts’ beneficial owners. Gradual and strong retaliation measures should be taken against uncooperative tax havens.
Promotion or undertaking tax evasion should be a criminal offence and made legally actionable, targeting their users: TNCs, banks, rich individuals; and financial intermediaries: corporate directors, lawyers and accountants in large financial centres. US action against UBS evidences the ability of a tax administration to extract information on off-shore accounts despite banking secrecy. Tax evasion should also be included under anti money-laundering legislation. Anti-money laundering efforts should be stepped up and particularly enhanced in developing countries, including by the strengthening of regional Financial Action Task Forces and by providing them with constraining power.
Governments must systematically reform and regulate offshore banking jurisdictions.
Schemes such as the European Union Savings Tax Directive must be tightened up to force automatic exchange of information between all legal entities and should progressively be extended to become a global regulation. Governments should support the intergovernmental work on reform of taxation, by upgrading the UN Committee of Tax Experts to the status of an intergovernmental body, providing sufficient resources to undertake its task, moving quickly to adopt the UN Code of Conduct on combating tax evasion and avoidance and strengthening judicial and tax cooperation through information exchange, effective black-listing of non-cooperative tax havens and obligations to repatriate stolen assets.
Comprehensive reforms are needed which will eradicate all of the mechanisms that the financiers, lawyers, accountants and their clients use to take advantage of tax havens. This will include demands for:
• comprehensive disclosure of ownership data;
• the closure of bank subsidiaries located in tax havens;
• adoption of a country-by-country reporting standard for multinational
companies;
• abolition of the use of “off-balance” sheet accounting vehicles;
• effective steps to tackle trade mispricing;
• taxation of hedge fund profits as income rather than capital gains;
• a multilateral tax information exchange treaty based on automatic exchange.
Taken as a package, these measures will severely restrict the use and abuse of tax havens. Many can be expected to collapse and might need transitional support to restructure their economies.
Transfer pricing
Closely related to the above, a number of contributors sought to end the practice of transnational corporations manipulating their accounts through distorted transfer pricing to show their profits where they are taxed least heavily, rather than where they are earned.
Transfer pricing was a common theme and many of the proposals focusedon how companies should report ownership structures, profits/losses and the taxespaid on a country-by-country basis. Many groups recommended an “automatic information exchange” component in order to prevent transfer pricing abuses.
Transnational corporations need to be effectively taxed. To avoid paying taxes, TNCs have taken advantage of the considerable trade between their multiple affiliates and developed complex mispricing strategies.
Country-by-country reporting as part of the international accounting standards for TNCs should be required in all sectors, as this would considerably curtail the possibilities for transfer pricing. [Bread for all (on behalf of Bread for all, Swiss Catholic Lenten Fund, Alliance Sud)] States at comparable levels of economic development and in geographic proximity and regional economic groupings should harmonize their tax bases and minimum rates for corporate taxation.
Country by country reporting of accounts should be required of all TNCs, not only in the extractive sector. Host country requirements such as local purchasing and trade balancing requirements, currently forbidden by the TRIMs [Trade Related Investment Measures] agreement, should be re-enabled, given their potential to prevent transfer pricing.
A key component of the new international norm must be “automatic information exchange”… [C]ompanies must report their ownership structures and the total profits, losses and taxes they pay on a country-by-country basis. This way, individual countries could check that the right amount of tax had been paid on profits originating in their countries and track the trade between subsidiaries and their parent companies. A new worldwide standard needs to be developed through the International Accounting Standards Board.
Financial transaction taxes
A number of contributions focused on variant proposals to tax financial transactions (inspired from the original “Tobin Tax” proposal), either for regulatory or revenue raising purposes or both.
Some focused exclusively on a Currency Transaction Tax (CTT) and others on a broader Financial Transaction Tax (FTT). The higher the tax rate, the higher its regulatory function was emphasized.
There can also be serious pursuit of a global tax on short-term financial flows, such as the Tobin Tax, where a small tax (say, 0.25%) is imposed on all cross-country currency transactions. This will penalize short-term speculators while it will have only a very small effect on genuine traders and long-term investors. The advantage is that not only will speculation be discouraged, but there can be greater transparency in the markets as movements of capital can be more easily traced.
Regulate transnational capital by instituting a financial transaction tax. This would help to slow down international speculation and risky practices, reducing some of the chaos in current international commodity markets.
A two-tier Currency Transaction Tax (CTT) would moderate the effects of speculative runs on currencies while generating revenue for development. It would so contribute to the prevention of major currency crises.
The CTT’s feasibility has been corroborated by many studies…. A more general Financial Transaction Tax (FTT) should tackle the financial instability that has been significantly exacerbated by the recent evolution of new financial instruments. The FTT could be levied on a whole
range of financial transactions.
It could be introduced step-by-step, first covering all transactions with financial assets, spots and derivatives in key financial centres, then expanding to broader geographical coverage. A FTT would stabilize excessively dynamic financial markets. As the tax base is the notional value of the respective transaction, the tax burden relative to the cash invested grows as the leverage effect rises.
Such a FTT will specifically hamper those transactions that involve high leverage and therefore a high risk. A general FTT would make transactions more costly the shorter their time horizon is, hence it would tend to dampen technical trading. It can be expected to reduce excessive liquidity stemming from short-term oriented and destabilizing transactions.
This CTT… would respond to the United Nations’ General Secretary’s concerns when he noted “renewed international interest in a possible currency-transaction ‘development levy’ of 0.005%, a minuscule tax […] having the potential to generate billions of dollars that can be allocated for development. […] Currency transaction taxes involve more than one country [... and] are best implemented in a cooperative manner among countries.”
Governments, parliaments and global civil society [should] enact a very small global levy or tax on international currency transactions…. The revenues would be divided between global international institutions, regional bodies, and the parliaments of participating countries. Funds designated for the global international organizations would be deposited equally into ten or more “sectoral trust funds,” including on peace and security, development and eradication of poverty, human rights, education, advancement of women, health and eradication of disease, environmental protection, children, disarmament, and debt relief.
II. RE-REGULATING FINANCE
Transparency and downscaling systemic risk
Many contributions called for greater transparency (which can only go hand-in-hand with decisive progress on secrecy jurisdictions and tax havens) and specific measures to scale-down or eliminate sources of systemic risk. Many stressed that transparency is necessary but not enough.
There should be greater transparency in the way the financial markets operate. There should be more disclosure of the players and the deals in the various markets, including the trade in currencies. In particular, the funds available to and the operations of highly leveraged institutions such as hedge funds should be made public.
At the global level, there should be a system of monitoring short-term capital flows, tracing the activities of the major players and institutions, so that the sources and movements of speculative capital can be publicly made known.
All existing financial instruments need to be strictly regulated. Over-the-counter markets, in which derivatives and other “toxic” products are exchanged without any public control, should be prohibited. Under a safe regulatory regime, standardised derivatives could be traded at the stock market and would be strictly supervised. New financial instruments must be licensed by public authorities.
[R]egulators need to be better trained to understand valuation problems for many types of securities and derivatives, including centralized [collateralized] debt obligations. New risk management techniques that can handle larger stress levels beyond arbitrarily determined standard deviations from historical averages need to be devised. New measures are also needed to regulate secondary markets, particularly bridging the gap between book values and mark-to-market pricing.
The possibility of a fiscal instrument which levies revenue proportionate to the levelof risk taken by an institution should be explored. This would both de-incentivise high levels of risk and ensure that where risks are taken, the revenue system builds reserves to address potential negative fallout of those risks.
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