Pablo Ordonez
PPO, La Paz
pordonez@ppolegal.com

Alexandra Ortiz
PPO, La Paz
aortiz@ppolegal.com

The First Latin American and Caribbean Tax Summit for Inclusive, Sustainable and Equitable Global Taxation

The First Ministerial Latin America and the Caribbean Tax Summit for Inclusive, Sustainable and Equitable Global Taxation took place on 27 and 28 July in Cartagena de Indias, Colombia. It was attended by authorities from the ministries of finance and economy of 16 countries, as well as political leaders and representatives of international, regional and civil society organisations.

Overview

According to information reported by Oxfam, Latin America and the Caribbean are among the most unequal regions in the world in income terms. Over the past decade, data indicates that ten per cent of the population in Latin America amassed 71 per cent of the region's wealth. If this trend continues, within six years, the top one per cent will possess more wealth than the remaining 99 per cent of the region.

From a fiscal policy perspective, this region is undergoing significant political changes with an impact on political management. Countries such as Bolivia, Brazil and Colombia are moving towards tax reform focused on creating an equitable tax framework for wealth redistribution.

In Europe and other countries that are members of the Organisation for Economic Co-operation and Development (OECD) and the G20, a harmonised action plan has been established to implement Pillars 1 and 2, set to commence in the fiscal year 2023. This plan is aimed at alleviating the effects of digitalisation on taxation.

In response, the Latin American states convened the First Latin American and Caribbean Summit for Inclusive, Sustainable, and Equitable Global Taxation. The purpose of the Summit was to establish a cooperative platform that facilitates an inclusive and transparent discourse on issues related to the following matters:

• the creation and reinforcement of coordination mechanisms to address the negotiation of global and multilateral tax measures, such as implementing Pillars 1 and 2, and achieving more significant equity in the global tax system;
• the promotion of tax progressivity by levying wealth and capital income to foster economic equality;
• the fight against tax havens and illicit financial flows; and
• the promotion of fiscal policies that tackle establishing ecological taxes and using fossil fuels to mitigate carbon emissions.

Organisers

The Colombian Ministry of Finance and Public Credit promoted the Summit along with the Brazilian and Chilean governments, and with the endorsement of the Economic Commission for Latin America and the Caribbean (CELAC).

The main purpose of the Summit was to establish a lasting framework for tax coordination among Latin American countries, thus creating a forum for comprehensive discussions on tax-related matters that impact the region.

Participants

On this inaugural occasion, 16 countries from the region took part, including Barbados, Chile, Honduras, Panama and Uruguay. They were represented by their respective ministries of finance, economics and finances, political leaders, delegates from international and regional organisations and civil society representatives.

Event proceedings

Preceding the Summit, the following activities were undertaken:

• January: launch of the initiative;
• 2–3 May: academic event titled ‘Rethinking Global Taxation’ in Bogotá;
• 15–16 May: governance pre-summit at CEPAL in Santiago de Chile;
• 26 July: private sector and civil society forums in Cartagena; and
• 27–28 July: the Summit itself was held, culminating in the declaration of an agenda for inclusive, sustainable and equitable taxation.

Summit objectives

Digital corporations taxation

The event aimed to deliberate on tax policies applicable to legal entities operating within a grey area, where digitisation and platform usage have necessitated the adaption of tax norms to adequately capture generated profits. The primary objective is to ensure that digital companies contribute taxes in the Latin American countries where digital corporations operate.

Combatting tax havens

Achieving cooperative mechanisms to define fair taxation across all countries and eliminate tax evasion situated in tax havens. The emphasis is placed on progressivity, as international mechanisms must be adopted to prevent significant corporations from evading taxes, while natural persons, who generate comparatively lower income, refrain from exploiting tax avoidance mechanisms. Information exchange also stands as a significant pillar to counter tax evasion, necessitating the formulation of multilateral or bilateral mechanisms.

Unifying the Latin American voice

The aim is to establish a unified stance among Latin countries, creating a more robust and more influential presence in global events that address international taxation. The goal is to deepen tax systems and reduce fiscal deficits in Latin America.

Efforts to eliminate tax competition

State cooperation must consider tax competition and eliminate pronounced discrepancies and preferences aimed at attracting foreign investment, as this approach generates losses for states and undermines progressivity. Minimum taxes, as exemplified in OECD Pillar 1, serve as an illustration. Tax competition should be seen as something other than a mechanism for attracting investment; instead, it merely generates accounting records without substantial economic activity.

Restructuring the tax framework

In Latin America and the Caribbean, approximately 50 per cent of revenue collection stems from indirect taxes, while in developing countries, enterprises and individuals contribute proportionally through direct taxes as they evolve.

International organisations, private sector and civil society participation

The event saw the participation of international organisations such as CELAC, the Global Initiative for Economic, Social & Cultural Rights, the Initiative for Human Rights in Fiscal Policy, Latindadd, Oxfam, the Tax Justice Network, the Tax Work Network and the Tax Justice Network. These organisations participated in and supported the Summit’s initiatives. Before the event, they invited civil society and academic actors to gather relevant topics for discussion during the Summit.

In this context, representatives from various sectors, including academia and the private sector, also provided recommendations on the guidelines taxation should adopt in the event of reform:

• regarding green taxes, their purpose should not be primarily revenue collection but addressing environmental issues arising from distribution concerns. Similarly, in the case of air transport, taxation for environmental damages should be refined in the country where the damage occurs;
• the protection of fundamental rights should encompass safeguarding private property;
• taxes on exploiting renewable resources should not hinder their use, as raw materials may become obsolete. Taxation should not discourage their utilisation (the example of lithium is provided);
• concerning the comprehensive wealth tax, migration may result due to its imposition, as affluent individuals can easily move country. Additionally, this tax challenges the principle of equality since certain wealth cannot be precisely measured;
• the solutions proposed by OECD Pillars 1 and 2 are deemed insufficient; a digital VAT could provide a solution;
• there is agreement that the source of payment principle is the most suitable criterion for taxing the digital economy; and
• information exchange is beneficial as long as countries protect taxpayers' rights. The information must be safeguarded, particularly in jurisdictions lacking legal security.

Participants’ positions

All participants concur on the necessity of forging a united front to amplify their stance in the face of global initiatives having an impact on Latin American economies. Although the ministers from participating countries made this general declaration at the outset of the Summit, they have yet to establish a firm stance on the Summit Declaration.

Bolivia

• tax matters are sensitive due to states’ various demands, and addressing tax issues individually proves challenging;
• with OECD solutions, developing countries will not achieve substantial progress;
• Bolivia has made three attempts at digital taxation, yet no measures have been successfully implemented; and
• Bolivia is willing to sign a binding agreement to commit to a Latin American-level voice for achieving inclusive, sustainable, fair and equitable taxation.

Honduras

• re-establish progressive taxation;
• spearhead the fight against tax havens; and
• reduce tax competition.

Panama

• Panama consistently engages in fiscal transparency and is willing to provide information to prevent the misuse of its services for tax evasion;
• Panama also supports the battle against money laundering; and
• the moderator highlights that 6.2 per cent of the country's regional gross domestic product (GDP) is lost due to tax evasion.

Mexico

• recognises the importance of collaboration while acknowledging common but differentiated necessities;
• Mexico is committed to the base erosion profit shifting (BEPS) plan; and
• Mexico's tax advancements encompass:
  • the issuance of Sustainable Development Goal (SDG) bonds; and
  • a zero per cent VAT rate for menstrual management products.

Peru

• the Summit creates a space for discussion to harmonise various mechanisms within tax systems, fostering regional unity in the management of tax policy.

Results

The Summit’s official outcomes will be disseminated in October 2023. Most participating countries have expressed their intention to sign a binding document; however, drafting and aligning criteria and common points will be essential to effectively garner support for the ideas generated during the event.

Final comments

All international stakeholders, including the UN, CEPAL and Oxfam, applaud the Summit’s convening and view it as a historic milestone that could benefit Latin American countries. Most institutions have refrained from issuing post-summit opinions or comments as they await the declaration to be crafted by the Tax Coordination Committee. While this proposal will not be binding, efforts will be made to identify common ground to achieve a binding agreement.

On the other hand, some commentators believe that the Summit could have yielded the anticipated outcomes and that attendance was limited to deputy ministers or officials without the authority to decide on such crucial matters. Regarding one of the central themes, the taxation of large digital service companies, consensus needs to be improved. This is because countries such as Argentina, Brazil, Colombia and Mexico are members of the OECD, while the majority view the OECD's solution as inadequate for most nations.