MULTILATERAL APPROACH BEST WAY TO TACKLE CAPITAL FLIGHT, TAX EVASION, MONEY-LAUNDERING, ATTORNEY TELLS SECOND COMMITTEE PANEL DISCUSSION

Fifty-eighth General Assembly

Second Committee

Panel Discussion on “International

 Cooperation in Tax Matters”

MULTILATERAL APPROACH BEST WAY TO TACKLE CAPITAL FLIGHT, TAX EVASION,

MONEY-LAUNDERING, ATTORNEY TELLS SECOND COMMITTEE PANEL DISCUSSION

Delegates Hear Expert Views on International Cooperation in Tax Matters

A multilateral approach was needed to tackle the problems of capital flight, tax evasion and money-laundering, which were robbing developing countries of an estimated $1 trillion, a panellist told the Second Committee (Economic and Financial) this morning.

Speaking during a panel discussion on international cooperation in tax matters, David Spencer, an independent attorney, emphasized the negative effect of capital flight -– the flow of capital from countries to international financial centres -- on developing-country resources.  In order to limit capital flight, experts had stressed the need to share tax information so that the capital could be taxed.

He said two major multilateral developments had already occurred.  The European Union had made cross-border interest payments within the region subject to tax, and the Organization for Economic Cooperation and Development (OECD) had stressed that OECD governments should no longer ignore tax evasion, and should limit capital flight from their countries to tax havens.  However, neither the European Union nor the OECD had addressed the problem of interest paid from their financial centres to residents of third countries.

David Rosenbloom, Director of the New York University International Tax Program, noted that international financial institutions, such as the OECD, International Monetary Fund (IMF) and the World Bank, were ill-equipped to speak for the international community on taxation.  The United Nations was the only body in the world that could tackle international taxation and come up with gains for all.

Similarly, Jose Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs and Co-Chairperson of the panel discussion, said parliaments created taxation systems, and were unlikely to share their autonomy in doing so.  The matter must be resolved through international decision-making at the parliamentary level, he emphasized, adding that the United Nations had a role to play in international tax cooperation.

Opening the discussion, General Assembly President and panel Co-Chairperson Julian Hunte (Saint Lucia) said the question was how to progress rationally and systematically in international tax matters.  Tax principles and standards must be laid down in a truly international organization, where both developed and developing countries could actively participate.

Addressing questions of globalization, investment, trade and tax competition, Reuven Avi-Yonah, professor at the University of Michigan Law School, said it was impossible to deal with tax competition, a phenomenon of the last 20 years, through bilateral tax networks.  Developing countries seeking to attract investment from multinational corporations must compete among themselves, and the country offering the biggest tax breaks would get the multinational business.

A new framework was needed to deal with those issues, he said.  Moreover, countries were generally not willing to give up sovereignty on tax matters and hand over jurisdiction to an international body.  The role of the United Nations must be strengthened, he said, suggesting that the Ad Hoc Group of Experts on International Cooperation in Tax Matters be upgraded to a permanent intergovernmental body.

Michael McIntyre, professor of law at Wayne State University, proposed the creation of a United Nations tax commission as a clearinghouse for countries to discuss individual grievances and pose tax-related questions to qualified experts.  Mr. Avi-Yonah supported that proposal, stressing that the absence of such a forum would result in countries imposing their own will on others.

Marcos Caramuru de Paiva, president of the Council for Financial Activities Control in Brazil’s Ministry of Foreign Affairs, said the international community must discuss tax transparency, general tax incentive procedures and surveillance of the tax policies of developing countries when addressing tax competition and tax policy.  Tax competition must be approached comprehensively, rather than from either a tax or trade perspective.

Antonio Hugo Figueroa, Chairperson of the Ad Hoc Group of Experts on International Cooperation in Tax Matters, said that countries operating under the principle of world income taxed income both inside and outside their territories.  Such double taxation led to a clash between nations imposing taxation within their territories and those taxing outside them.

Emphasizing that double taxation was undesirable because it affected the mobility of capital, and possibly trade, he said that a new model to suit development and underdevelopment was needed.  The international community must continue to discuss those issues to find a fair taxation balance among countries.  Resources in developing countries were the key to lasting growth, he added.

Responding to a question during the ensuing discussion on the World Trade Organization (WTO) subsidies code on income-tax exemptions, Mr. Avi-Yonah said many countries had provisions for WTO tax exemptions.  However, the exemptions did not cover services and financial activities and the WTO lacked suitable tax experts to deal with that matter.

To a delegate’s question about developing a framework for international tax cooperation, Mr. Figueroa replied that international tax evasion and international taxation must be addressed comprehensively.  In the past decade, Latin American countries had taken unilateral steps to address issues of major tax complexity such as trade and electronic commerce, all of which called into question the role of national tax departments and tax policies.

Other speakers on the panel included Abdel Hamid Bouab, Secretary of the Ad Hoc Group of Experts on International Cooperation in Tax Matters; Lynette Eastwood, Minister for Commerce, Consumer Affairs and Business Development, Barbados; and Sheldon Cohen, Senior Counsel at Morgan, Lewis & Bockius.

The Second Committee will meet again at 3 p.m. today when it will conclude its consideration of implementation of Agenda 21 and the World Summit on Sustainable Development, the United Nations Decade of Education for Sustainable Development, and the Programme of Action for the Sustainable Development of small-island developing States.  It is also expected to take up the operational activities for development and economic and technical cooperation among developing countries.

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