Illicit financial flows and domestic resource mobilisation

The problem

Taxation is a key tool for correcting economic inequalities. This is true for inequalities between countries, where the design of the rules, including the approach to allocating profits of multinational corporations between countries, is central to the reduction of gaps between poor and wealthy countries. It is also true for inequalities within countries, where a progressive tax system is vital for reallocating resources from the richest to the poorest and for financing public services.

However, if international and national tax systems are designed wrongly, they can also have the effect of increasing inequalities within and between countries. For example, when international loopholes and tax havens allow wealthy individuals and corporations to dodge taxes at the national level, governments can end up being faced with two negative options, namely austerity or regressive tax policies, which have a disproportionally hard impact on the poorest. Both of these options can end up increasing economic inequalities within countries.

Furthermore, since women tend to rely more heavily on public services, government spending cuts also risk increasing gender inequalities.

Tax-related illicit financial flows – and the impacts on progressive taxes

International tax dodging remains a major concern – both in developed and developing countries. In the report State of Tax Justice 2023, Tax Justice Network has estimated that governments lose around US$480 billion annually due to international tax abuse. Of this amount, US$311 billion stems from tax abuse by multinational corporations and US$169 billion from offshore tax evasion by wealthy individuals. While tax evasion refers to practices that are outright illegal, corporate tax dodging often happens through tax avoidance, meaning practices whereby the spirit of the law is circumvented through methods that might be legal from a technical perspective.

Tax and the environment

In the context of reaching the global environmental objectives, there is a growing debate about how tax systems can contribute to reducing environmental harm, including whether polluting activities should be discouraged with targeted taxes. However, rather than creating disincentives for pollution the current tax system in some cases includes loopholes and incentives that can result in heavily polluting activities being taxed at lower – rather than higher – rates than other activities.

Global tax governance

Currently, there is no truly global agreement on international tax matters. For the last half a century, the OECD has led several processes to develop standards that are often referred to as ‘global’, but the processes through which they were developed have been far from globally inclusive.

For well over a decade, the developing country negotiating group, G77, has been calling for an intergovernmental tax process to be set up at the UN to ensure that all countries are able to participate in global tax governance on an equal footing. Until quite recently, this proposal was consistently blocked by OECD countries, which instead advocated for the OECD to continue leading the development of global tax standards.

However, over the last few years, there has been a rapidly growing recognition of the fact that action is needed to strengthen the inclusiveness and effectiveness of global tax governance. At the end of 2022, all UN member states agreed – by consensus – to a landmark UN resolution on international tax cooperation. This resolution, which had been put forward by the Africa Group at the UN General Assembly, mandated an intergovernmental tax negotiation to be initiated under the auspices of the UN, where all countries would be able to participate on an equal footing.

In 2023, the Africa Group followed up with a resolution that proposed the negotiation of Terms of Reference for a new UN Framework Convention on International Tax Cooperation. In a historic vote at the 2nd Committee of the UN General Assembly, the resolution was adopted with an overwhelming majority, namely 125 votes in favour, 48 votes against and 9 abstentions. Following the adoption of the resolution, an ad hoc committee was established to begin the negotiations of the Terms of Reference, and in February 2024, at the organisational session of the new committee, all UN member states reached consensus on a roadmap towards finalising the Terms of Reference by the end of August 2024, in line with the mandate of the 2023 resolution.

The change we need

There are clear alternatives to the existing system. We call on governments to:

Negotiate and adopt a UN Convention on Tax as a new global framework for international tax cooperation

The UN Convention on Tax should be designed with a view to ensuring a fair division of taxing rights between nation states and reducing illicit financial flows, including by stopping all forms of tax abuse by multinational corporations and the wealthy elites, as well as mobilising financing for governments to fulfil international goals, obligations and commitments, including those relating to human rights, environmental protection, equality and the achievement of the Sustainable Development Goals.
Ensure that tax systems are progressive and serve to reduce inequalities within and between countries.
Introduce taxes on wealth to increase financing for public services, climate justice and a just energy transition, as well as to reduce inequalities within and between countries and help curb the continuing amassing of wealth, profits and power in the hands of an elite minority at the expense of the majority.
Eliminate tax incentives and subsidies that benefit wealthy individuals and corporations and exacerbate inequalities.
Tax the super-profits of corporations and individuals benefitting from times of crises by instituting windfall profit taxes.
Ensure that tax and fiscal policies recognise, reward, reduce, redistribute and reclaim unpaid care and domestic work, including by putting in place policies on care work.
Reduce unfair tax burdens on women and adopt progressive, redistributive and gender equal taxation – including new forms of taxation of capital and wealth – combined with less reliance on consumption taxes, including value added tax.
Remove gender bias and discrimination in tax policies to ensure that tax revenues are raised and spent in ways that promote gender equality.
Ensure adequate financing of gender-responsive and transformative public services that provide universal access and universal coverage, that are publicly funded, delivered, managed and governed in a transparent, participatory and accountable manner, and that are being delivered by public sector workers enjoying decent work.
Ensure adequate financing, policy and fiscal space to promote women’s rights and reduce inequalities, including by introducing gender budgeting and applying feminist taxation principles.
Introduce progressive green taxation, including to ensure a just energy transition.

Address the negative environmental, social and economic impacts of extractive industries, including by:

Curbing tax incentives granted to the extractives industries;
Making extractives companies pay their share in taxes and immediate costs of rehabilitation and rebuilding;
Using taxes for peoples’ needs, especially for the needs of communities affected by social and environmental damage; and
Protecting and upholding the rights of workers and women affected by mining, including their rights to defend their communities.

The Global Tax Body mascot stands next to a sign held by activists reading 'We need a global tax body now!" Activists surrounding the tax body hold pieces of paper, reading 'we'll be back' and 'we'll see you in NY'. The photo was taken after the 3rd FfD conference in Addis Ababa in 2015.

Taking action

Civil Society Organisations in the tax justice movement have a strong vision for turning inequalities around through a fairer global system. This vision is worked out through:

Advocacy

We intervene in international fora such as UN meetings, meet one-on-one to talk tax with decision makers, share our research and aim to convince those with the power to make system changes.

Awareness-raising

Who wants to hear about complex global tax rules? The realities of this unjust system are hidden behind layers of complexity, dull accounting and poor transparency. We help the general public understand the glaring consequences of this foggy system. Getting attention to the issues through conventional and social media helps turn the tide in public opinion and put pressure on decision-makers.

Research and analysis

We analyse the impact of tax policies, collect information about harmful practices of tax havens, and crunch numbers to estimate the scale of tax losses.

Coordination

We bring together CSOs from across the world share information, carry out joint actions, and raise stronger voices together. We also build connections with other sectors, showing the ways that tax justice can be transformative for achieving goals for poverty alleviation, gender justice, climate action and more.

The movement

The partners in this project work within broader networks that bring together a wide range of CSO voices in the fight for tax justice:

The Global Alliance for Tax Justice (GATJ)

A South-led global coalition working for a world where progressive and redistributive tax policies counteract inequalities within and between countries, and generate the public funding needed to ensure essential services and human rights. The alliance is made up of five regional networks from Asia, Africa, Latin America, North America and Europe.

Civil Society Financing for Development (FfD) Mechanism

The CSO FfD Mechanism is an open civil society platform which has been active in its present format (Global Social Economy Group – GSEG) since the Doha FfD Review Conference in 2008, though many of its members are engaged since the Monterrey FfD Conference in 2002. It brings together more than 800 organizations (with more than 950 individual members). The CSO FfD Mechanism includes the Women’s Working Group on FfD.

Women’s Working Group on FfD

An extensive arena for networking, strategizing and alliance building on issues related to Financing for Development, bringing a feminist and women’s rights perspective to the discussions.

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