Tax Cooperation Policy Brief 11, February 2020

The Role of South-South Cooperation in Combatting Illicit Financial Flows

By Manuel F Montes

Developing countries bear the brunt of costs from illicit financial flows (IFFs). These losses are the result of the facilities that the global system provides transnational companies, operating in multiple tax jurisdictions, to move their profits to favorable locations. International cooperation has been seen to be a key ingredient in restricting IFFs. However, a difference in interests in the treatment of many types of transactions between developed and developing countries is an obstacle to a fast solution of the problem. Developing countries must seek to seize the initiative to restrict their losses from IFFs. They can deploy various joint and concerted actions, within the umbrella of the principles of South-South cooperation for this purpose.

Les pays en développement supportent la majeure partie des pertes liées aux flux financiers illicites. Ces pertes résultent des facilités que le système mondial accorde aux sociétés transnationales opérant dans divers pays, qui leur permettent de transférer leurs bénéfices vers ceux dont le régime fiscal est le plus favorable. La coopération internationale apparait comme un élément clé pour limiter ces flux financiers illicites. Toutefois, les différences qui existent entre les pays développés et les pays en développement dans le traitement des différents types de transactions font obstacle à une solution rapide du problème. Les pays en développement doivent prendre des initiatives pour faire en sorte de limiter leurs pertes liées aux flux financiers illicites. Ils peuvent déployer à cette fin diverses actions communes et concertées sur la base des principes élaborés à cet égard dans le cadre des mécanismes de coopération Sud-Sud. 

Los países en desarrollo soportan la mayor parte de los costos asociados a las corrientes financieras ilícitas (FFI). Estas pérdidas son el resultado de las facilidades que el sistema mundial proporciona a las empresas transnacionales, que operan en múltiples jurisdicciones fiscales, para trasladar sus ganancias a lugares convenientes. La cooperación internacional parece ser un elemento clave para restringir las FFI. Sin embargo, la diferencia de intereses en el tratamiento de muchos tipos de transacciones entre los países desarrollados y los países en desarrollo representa un obstáculo para una rápida solución del problema. Los países en desarrollo deben tratar de aprovechar la iniciativa para restringir sus pérdidas provenientes de las FFI. Podrían emprender diversas acciones conjuntas y concertadas dentro del marco de los principios de la Cooperación Sur-Sur para este fin.

This brief is part of the South Centre’s policy brief series focusing on tax policies and the  experiences in international tax cooperation of developing countries.

Efforts to reform international cooperation in tax matters are exhibiting a distinct acceleration.  The direction of change must recognize and incorporate innovations in developing country policies and approaches, otherwise the outcomes will obstruct practical paths to development.

The policy brief series is intended as a tool to assist in further dialogue on needed reforms.

*** The views contained in the policy briefs are personal to the authors and do not represent the institutional views of the South Centre or its Member States.

Download the tax cooperation policy brief below:

The Role of South-South Cooperation in  Combatting Illicit Financial Flows

 


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