International organizations (Organisation for Economic Co-operation and Development, United Nations, International Monetary Fund, World Bank, etc.) and governments face the question: what is the relationship between tax policy and the achievement of the Sustainable Development Goals (SDGs)? In answering this question, everyone concludes that the connection is certainly there, but it is only necessary to clearly understand – how to use tax instruments to find resources to achieve CSR.

Taxes are mainly integrated into the SDGs through goal 17.1, which provides for the need to “strengthen the mobilization of domestic resources, including with the international support of developing countries to improve the domestic capacity to collect taxes and other revenues ”[1].

Domestic resource mobilization is a key issue for developing countries struggling to generate sufficient income to provide basic services such as road infrastructure, food security, health and public safety. Studies show that at least 15% of SDGs is needed to finance these basic services, but in almost 30 of the 75 poorest countries, tax revenues are below the 15 percent threshold. Addressing the SDGs funding gap in 2030 will require between $ 5 trillion and $ 7 trillion per year and $ 2.5 trillion to $ 3 trillion of this amount for developing countries alone.

To make up for the SDGs funding gap, developing countries are forced to increase the tax burden. The donor community has already stepped up its efforts to support them, pledging to double the amount of collective technical assistance in the field of taxation between 2020 and 2025.

Mobilization of internal resources is a priority to increase the national funding capacity of the SDGs [2]. Taxes are already the largest source of funding and have the potential for growth. If in low-income countries in 2017 the total amount of tax revenues amounted to 14.8% of SDGs, in high-income countries this figure was 33.5%. Another key area for the development of sustainable government revenues is the effective fight against tax evasion and illegal financial flows. Developing countries have some of the highest rates of offshore financial wealth (22% in Latin America and 30% in Africa compared to 10% in Europe), indicating a high risk of tax evasion.

Today, the role of multilateral institutions in tax issues is growing. For example, the Organization for Economic Co-operation and Development works closely with the African Development Bank to improve tax transparency and prevent illicit financial flows.

In 2018, the Asian Development Bank conducted a Review of the Bank's policy measures to ensure tax integrity [3], which identifies tasks to support international tax integrity, primarily through work on the site of the Organization for Economic Cooperation and Development, implementation of technical assistance programs developing in the region in terms of combating tax erosion (implementation of measures of the BEPS Plan of the Organization for Economic Cooperation and Development), etc. The Asian Development Bank implements initiatives both at the country level, helping them to implement the BEPS Plan and at the project level through due diligence procedures regarding tax integrity. In particular, during the evaluation of projects, the Asian Development Bank assesses the risks of abuse of the provisions of treaty shopping agreements, the use of complex corporate structures, intermediary jurisdictions to obtain unjustified tax benefits, and others. The Asian Development Bank also works closely with the Organization for Economic Co-operation and Development, including through joint trainings on tax transparency.

Indeed, tax compliance is of key importance to development institutions in terms of evaluating funded projects. Development institutions must play an important role in promoting the responsible tax practices of companies that receive funding.

First, the assessment of the company's tax risks will ensure that during the project the company will not have serious problems with the tax authorities, which can lead to significant fines and reputational risks.

Second, development institutions must ensure that the companies they fund do not resort to the use of tax havens and minimize the risks of tax evasion.

To ensure the contribution to increasing the sustainability of public finances in terms of revenues, development institutions need:

-       adopt a comprehensive policy on tax risk management, based on the standards of the Organization for Economic Co-operation and Development;

-       assess the tax risks of clients, which, inter alia, involves the disclosure of beneficiaries of owners of funded projects;

-       ensure that offshore jurisdictions are not used to direct investments. When using an intermediate jurisdiction, it is necessary to ensure that its use is justified and consistent with the policy objectives of the development institution. If offshore entities are present in the corporate structure of the client or partner, then, in addition to the usual requirements, extended tax compliance procedures should be applied.