Developing countries are pushing for creation of an intergovernmental tax body under the United Nations to combat international tax dodging and illicit financial flows.

Failure to reach an agreement at the ongoing 3rd Financing for Development conference in the Ethiopian capital Addis Ababa, activists say, threatens the future of development. The Addis conference will set out how the world will finance development for the next two decades.

Activists say the conference is an opportunity for governments to start developing a more democratic and fairer global tax system.   

Currently, developing countries lose more than $100 billion annually due to tax avoidance by multinational companies, according to aid agency Oxfam.

Reforming corporate tax rules activists argue, would allow poor countries to claim the money owed to them which is critical to overcoming poverty and tackling inequality, and achieving sustainable economic growth.

“This is where the political decisions, norms have to be set, and once the agenda is set then the technical committee can take to implementation. Without a political framework for resolving corporate tax issues we will not progress,” Winnie Byanyima, Oxfam’s executive director told The EastAfrican. 

Africa, Ms Byanyima argued, is haemorrhaging billions of dollars because multinational firms are cheating African governments out of vital revenues by not paying their fair share in taxes.

“If this tax revenue were invested in education and healthcare, societies and economies would further flourish across the continent.”

In 2010, the last year for which data is available, multinationals avoided paying tax on $40 billion of income through a practice called transfer pricing – where a company artificially sets the prices for goods or services sold between its subsidiaries to avoid taxation.

Oxfam estimates that with corporate tax rates averaging 28 per cent in the continent, Africa loses about $11 billion in tax revenues.

Tax standards

While the Organisation for Economic Cooperation and Development (OECD) currently sets the tax standards such as double taxation agreements and transfer pricing guidelines, it is made up of just 34 rich countries.

Yet creating an intergovernmental tax body would include the more than 100 developing countries, which remain disproportionately affected by illicit financial flows that are excluded from the decision making process.

“The poorest of people bear the brunt of this problem, yet the solutions are only made by the Paris-based OECD,” said Joel Akhator Odigie of the African Regional Organisation of the International Trade Union Confederation.

The African Union/United Nations Economic Commission for Africa (Uneca) High Level Panel on Illicit Financial Flows (IFF) estimates that Africa loses up to $50 billion a year.  

This is enough to halve poverty in Africa by 2030 according to Uneca.

Uneca estimates that $48 billion per year is needed between 2015 and 2030 to halve poverty in Africa, assuming that inequality remains constant and savings, FDI and ODA stay at their 2014 levels.

“If the status quo remains and standards continue to be set by the OECD, we will be stuck with an unjust system that cannot solve the problem of illicit financial flows. The rest of the world will remain on the outside looking in,” said Pooja Rangaprasad of the Financial Transparency Coalition.

A failure in Addis will threaten the post -2015 agenda, climate change talks and the sustainable development goals to be decided this year.

The rising level of illicit financial flows directly affects how much governments are able to fund the drivers of development including education, infrastructure and health.

“It makes absolutely no sense that rich-country-agreements are ready to jeopardise the global tax system, as well as the post-2015 and climate negotiations, just to make sure that poor countries continue to be excluded from the decision making on global tax standards,” said Tove Maria Ryding, Tax Justice Coordinator at the European Network on Debt and Development.