Financial Transparency Coalition

FTC members convene Third meeting with Parliamentarians for Tax Justice in Latin America.

What role must parliamentarians play to confront the revenue challenges facing countries in the global South?  States across Latin American are enduring a system of international taxation that deprives them of the resources required to fulfill their citizens’ rights and needs. FTC members Latindadd & Fundacion-SES convened parliamentarians from ten countries across the region in Mexico City 19-20 March, for the III Encuentro con Congresistas por Justicia Fiscal (Third meeting with Parliamentarians for Tax Justice in Latin America), with civil society advocates and experts. The event asked what parliamentarians can contribute toward reform and sought to identify how they can collaborate to overcome a political climate across the region that has become increasingly hostile, as many of the participants documented in their home countries.

This discussion identified the obstacles to reform including the regional trend toward government administrations less inclined than predecessors to implement reforms able to reduce illicit financial flows (IFFs). This raised several questions, such as at what level can policy makers and legislatures intervene most effectively? Is it necessary to seek to support the global efforts for reform, develop more regional collaboration or drive reform and awareness of the problem of illicit financial flows (IFFs) nationally? Moreover, how could they work together when it is overwhelmingly the case that parliamentarians willing to scrutinise these policy issues are in opposition or congressional minorities.

The meeting underlined that the challenges to reversing illicit financial flows (IFFs) are daunting; not least because the social costs IFFs impose are rising. The increasingly regressive character of national tax regimes is being driven by attempts to compensate for lost tax revenue. This is lost to tax havens, as well as through corruption, opacity and aggressive avoidance, often facilitated by national governments – in particular through generous tax incentives offered to encourage investment. Investment in social provision has declined, as work from Fundacion-SES has documented in a working paper about the depletion of the Argentinian retirement system and IFFs, and the distortion of the effective tax burden which privileges reducing corporate taxation versus reliance on indirect taxes that exacerbate inequality. Though expert speakers and parliamentarians agreed that IFFs had to be reduced, doing so was not considered a panacea. Indeed, confronting IFFs could only be the first step in reversing the damage to social provision witnessed in the last decade since the international financial crisis.

The recognition that tax policies are not a technical issue, rather a question of political choices and priorities, was contrasted with the difficulty in the region of advancing a reform agenda due to the nature of the forces arranged against any program of reform in Latin America. Policy reform requires outreach and increased collaboration across borders, regionally and globally. Advocating policies such as public beneficial ownership registers, or that countries engage more fully in automatic exchange of information or seek to demand that multinational corporations report their activities in each jurisdiction requires that political pressure be built in the face of key actors’ and even governments’ own hostility. As argued by Alan Fairlie of the Andean parliament, there remains a critical need to build capacity, awareness and outreach to social movements demanding the basic public services which IFFs are actively undermining.  Progress is halting, as shown by countries such as Argentina and Peru where despite commitments toward beneficial registers, the current reality falls short of what is required. In Peru despite recent regulation on beneficial ownership, it is not clear how the institutions required to implement it will do so and the legislation still does not require registers of beneficial ownership to be public.

The event sought to build a space for exchange between these critical actors, facilitate the exchange of their experiences in advocating for reform.  Faride Raful, a deputy in the congress of the Dominican Republic, challenged her fellow parliamentarians to recognise that alongside their national role, the event represents an opportunity to work more closely together across their jurisdictions, and draw upon each other’s work and efforts to ensure scrutiny of governments’ policies and the financial flows into and out of their nations.

This recognition underpinned the event’s exploration of how to build on participants’ national-level leadership, regionally. Experts and civil society advocates shared their work with coordination of national and regional tax administration bodies (such as the meetings Latindadd and Fundacion-SES have convened with CIAT, the Inter-American Center of Tax Administrations) to build networks of tax authorities able to share experiences, generate common approaches and identify priority areas for reform. Beyond working with key authorities and experts, speakers pointed to the galvanizing effect and public impact of media attention. The lesson drawn for parliamentarians was on their need to cooperate with each other, noting how even smaller and marginal press outlets eventually succeeded through sustained collaboration in generating widespread attention on corruption cases, the role of tax havens, and the need for transparency policies.  Thus parliamentarians wishing to address IFFs in their country need to exploit cross-border collaboration and coordination to push these issues up the national agenda.

The event also explored global reform challenges and what parliamentarians’ role should be to influence them. The shifting policy reform environment, where key institutions such as the OECD and G20 remained drivers of a policy agenda with inadequate representation of countries in the South. The follow-up to the OECD-led Base Erosion and Profit Shifting (BEPS) process demonstrates this, as does the ongoing marginalization of the United Nations. Participants recognized the need to challenge their governments to play a stronger role in the G77 grouping of nations to demand systemic reform to the international economic architecture. Especially important is the question of taxation of an increasingly digitalized economy, an issue which the original BEPS process neglected partly due to the disproportionate influence of countries in the global North. This phenomenon is increasingly detaching economic activity from geographic locations, providing more opportunity for multi-national corporations in particular to minimize the tax they pay to countries in the South.

This third meeting of parliamentarians in Latin America, organised on behalf of the FTC by members Latindadd and Fundacion-SES, is part of a wider program of capacity building and engagement with key stakeholders across the region, which will include convening public officials (tax administration authorities, financial intelligence units, public ministries, anticorruption offices, amongst others) and investigative journalists later this year.

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