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Primary contact:
David E. Spencer, J.D. LLM. Taxation, AttorneyThe Law Offices of David Spencer866 United Nations Plaza, New York, N.Y. 10017-1811Tel +212 751 3864 Email spenlaw@msn.com
PROPOSALS BY THE TAX JUSTICE NETWORK TO THEMEETING OF THE GROUP OF EXPERTS IN ROME
:
September 4-5 2007
Tax Aspects of Domestic Resource Mobilization:A Discussion of Enduring and Emerging Issues
The United Nations in the Monterrey Consensus has challenged developing countriesto mobilize domestic resources. This was confirmed by the UN’s General Assembly in the2005 World Summit.But if developing countries are to mobilize domestic resources, it is necessary toconfront the problem of capital flight from developing countries, and the resulting taxevasion in developing countries. The UN’s General Assembly in the 2005 World Summit, inthe section on Domestic Resource Mobilization, resolved to “support efforts to reducecapital flight and measures to curb the illicit transfer of funds.”In order to assist those efforts, the Tax Justice Network has the followingrecommendations:
(1) Code of Conduct on Cooperation in Combating Capital Flight and InternationalTax Evasion and Avoidance
The Tax Justice Network (“TJN”) recommends that the UN Tax Committee requestthat ECOSOC approve the resolution concerning the development of a Code of Conduct onCooperation in Combating Capital Flight and International Tax Evasion and Avoidance,
 
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presented by Professor Michael McIntyre to the UN Committee of Experts on InternationalCooperation in Tax Matters (“UN Tax Committee”). A copy of a proposal for such a draftcode of conduct is attached hereto as Annex A. TJN believes that such a Code of Conductwould be a step forward in helping developing countries mobilize domestic resources, asemphasized by the United Nations.
(2) Effective Exchange of Information: What constitutes “Effective Exchange of Information?”
TJN recommends that the UN Tax Committee prepare a report about whatconstitutes “effective exchange of information” for purposes of Article 26 of the UN ModelDouble Taxation Convention between Developed and Developing Countries (“UN ModelIncome Tax Treaty”). The UN Tax Committee should report on what information ajurisdiction should routinely obtain and have available, in order to be able to comply withits obligations to exchange information pursuant to Article 26 of the UN Model Income TaxTreaty and other income tax treaties. This should include information about (a) cross borderpayments (including names of the actual beneficiaries of such payments) and (b) beneficialownership of companies, trusts, institutions and other entities, including the identity of those with powers to dispose of the assets, and the beneficiaries of such entities. Obtainingsuch information would also be in accordance with Recommendation 33 of he FinancialAction Task Force (FATF). TJN is concerned that the tax authorities in many jurisdictions donot routinely obtain domestically the appropriate information (resulting in de facto banksecrecy), and therefore those jurisdictions are not financially transparent. Consequently,those jurisdictions can not engage in “effective exchange of information”. The OECD hasemphasized that in order to combat tax evasion and tax avoidance, exchange of informationshould be “effective”.
(3) Role of International Financial Institutions in Capital Flight and Tax Evasion:Monitoring and Surveillance Responsibilities
TJN recommends that the UN Tax Committee request that the InternationalMonetary Fund (IMF), in fulfilling its responsibilities of the monitoring and surveillance of financial centers and the international financial architecture, include in its Reports onObservance of Standards and Codes (ROSCs) whether a jurisdiction that is a financial centercomplies with standards of international financial transparency. This should include (a)whether the jurisdiction (i) overrides bank secrecy and other confidentiality laws in taxmatters, and (ii) requires the automatic reporting domestically of tax related information
 
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by payers of income to foreign payees and therefore such jurisdiction has tax relatedinformation available to be exchanged with other jurisdictions, and (b) whether thejurisdiction in practice does engage in effective exchange of information with otherjurisdictions.
(4) Capital Flight and Tax Evasion as Corruption
TJN recommends that the UN Tax Committee consider whether capital flight and theresulting tax evasion should constitute acts of corruption within the scope of the UnitedNations Convention Against Corruption, as follows(a) Private sector corruption by the person (individual or company) that transfers fundsto another jurisdiction and evades taxes. That person is illegally diverting forhis/her/its private use, funds (tax revenue), that belong to the public sector.(b) Private sector corruption by financial intermediaries that knowingly encourage orfacilitate capital flight and the resulting tax evasion in other jurisdictions, becausethey are enabling the illegal diversion for private use of funds (tax revenue), thatbelong to the public sector .(c) Public sector corruption by the governments in the onshore and offshore financialcenters that provide de jure bank secrecy or de facto bank secrecy and otherconfidential treatment of financial transactions without providing effective exchangeof information in tax matters. Such treatment facilitates and encourages capitalflight from other jurisdictions, and tax evasion in those other jurisdictions. Thus,governments in such financial centers knowingly aid and abet corruption by enablingthe illegal diversion for private use of funds (tax revenue), that belong to the publicsector.
(5) The Uniform Framework For Preventing and Combating Fraud and CorruptionElaborated by the International Financial Institutions
TJN recommends that the UN Tax Committee urge the international financialinstitutions (African Development Bank, Asian Development Bank, Inter-AmericanDevelopment Bank, European Investment Bank, European Bank for Reconstruction andDevelopment, the International Monetary Fund and the World Bank) to expand thedefinition of corruption in that Uniform Framework to include the following: (a) privatesector corruption by the persons as described in paragraph (4)(a) above; (b) private sectorcorruption by financial intermediaries described in paragraph (4)(b), above; and (c) public
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