UN Urges To Plug Tax Loopholes Before Fighting Illegal Financial Flows

The annual meeting of UNCTAD in Geneva (Switzerland) looked at plugging the financial leakages as one of the most effective ways to help the governments to raise additional revenue and fund the trillion-dollar investment projects associated with the UN-endorsed 17 Sustainable Development Goals (SDGs).

Plugging Tax Loopholes

Daniel Titelman, director of the development division of the UN Economic Commission for Latin America and the Caribbean, addressed that compared to fight illicit and licit leakages, governments and international organisations may have more statistical and policy tools to stem the legal flows, particularly tax avoidance. That can expand the tax base and provide the permanent incomes to finance long-term expenditures like SDGs. He argued by example of Argentina in which the undeclared assets amounted around 21% of GDP and potentially related fines were worth about 2% of GDP which would have been very difficult to raise through tax reform.

Problem and Solution

The real problem is that current rules allow wealthy companies and individuals to make use of the loopholes among various jurisdictions. Since the financial flows have cross-border nature, domestic actions are not sufficient and international action should be implemented at the same time. One potential solution proposed in the meeting to combat tax avoidance is to treat multinational corporations and their subsidiaries as a single entity for tax purpose and allocate their worldwide profits according to an agreed-upon formula. It seems ambitious but realistic if there is sufficient political will among the developing countries, especially considering the EU’s proposal for the common corporate tax rate.

Sources: UNCTAD

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