Billions lost to profit shifting, Asian govts must step up in UN tax talks

 

Billions of dollars that could fund schools, hospitals, social protection, and climate action are lost every year as multinational corporations shift profits out of the countries where they operate.

Yet, as the United Nations negotiates a new global tax framework that could help developing nations reclaim this revenue, Asian governments risk being left on the sidelines.

Representatives of 15 civil society organisations, trade unions, think tanks, and parliamentary offices from Malaysia, Indonesia, the Philippines, Thailand, India, Nepal, and Pakistan, who met in Kuala Lumpur on Oct 27 and 28, are calling on Asian and Asean governments to step up their engagement in negotiations for a United Nations Framework Convention on International Tax Cooperation.

The proposed framework presents a historic opportunity to secure a fairer share of global tax revenue for developing countries.

Following our meeting to review and strategise on the negotiations, we are deeply concerned that Asian governments, particularly those from the developing Global South, remain insufficiently represented in shaping the future of international taxation.

The stakes could not be higher. The UN negotiations offer a chance to transform an international tax system long dominated by the Organisation for Economic Co-operation and Development (OECD) into one that is fairer, more inclusive, and responsive to the development needs of all nations.

For decades, developing countries have been denied a fair share of tax revenue generated within their economies. Multinational corporations continue to exploit gaps in international tax rules to shift profits to parent companies in the Global North and low-tax jurisdictions, depriving countries where economic activity takes place of vital public revenue.

A fairer share of global taxes

The proposed UN tax convention offers an unprecedented opportunity to change this.

A central principle of the negotiations is that countries should be able to tax profits where goods and services are produced and distributed. This is particularly important for developing economies seeking to mobilise domestic resources to finance their social, economic, and environmental development.

The potential gains are substantial.

According to a report by the Tax Justice Network (TJN) and Public Services International (PSI), Malaysia could recover an estimated US$479 million (RM1.9 billion) annually in tax revenue lost through multinational profit shifting. Indonesia could gain approximately US$9.5 billion, the Philippines US$5.7 billion, and Thailand US$2 billion. Globally, countries lose close to US$500 billion in tax revenue each year.

An opportunity for developing nations

Why, then, are our governments not doing more to shape these negotiations?

The UN process represents the most significant opportunity in decades to establish a genuinely inclusive global tax system. Unlike the OECD framework, largely developed by wealthy countries, the UN process gives every country an equal opportunity to help shape international tax rules.

The proposed convention could establish a fairer distribution of taxing rights, strengthen the taxation of cross-border and digital services where they are used, address the taxation of the super-rich, and curb multinational corporations' practice of shifting profits out of the countries where they operate.

With the rise of the internet and the rapid growth of cross-border digital services and e-commerce, which now affect practically every sector of the economy, it is crucial for developing countries to commit to the UN process.

Yet many Asian governments continue to rely on the existing OECD framework, despite its limitations and the unequal power dynamics that have shaped international tax policymaking.

Governments must step up

We therefore call on governments across the developing South, particularly Malaysia, Nepal, Pakistan, Bangladesh, and Thailand, to participate actively in the forthcoming UN negotiations in Nairobi, scheduled for Nov 30 to Dec 10.

Asian governments must work collectively to ensure that the new global tax regime reflects their economic realities, development priorities, and people's interests. This is a question of economic justice, national sovereignty, and governments' ability to deliver essential public services. - Mkini

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CHARLES SANTIAGO is director of Monitoring Sustainability of Globalization, a Malaysian-based NGO, as well as the former Klang MP.

JEANNIE MANIPON is senior programme manager for development finance at the Asian People's Movement on Debt and development, a regional alliance advocating economic justice, debt relief, and people’s rights.

CHEE YOKE LING is executive director of the Third World Network, which advocates for developing countries and sustainable development.

The views expressed here are those of the authors/contributors and do not necessarily represent the views of MMKtT