Friday, October 27, 2006

OECD reaches out to the world: a world tax organization in the making?

Is there a “true” intergovernmental forum on a global level to deal with questions of taxation? The answer that lawyers prefer is “it depends”! It is true that the Organisation for Economic Co-operation and Development (OECD), following the footsteps of the League of Nations, carried out pioneer work in the field of international taxation but the question remains if it is worldwide representative. Projects under the auspices of the United Nations are still pending.

The OECD is an international organisation well known to all international practitioners. This Paris-based international organization serves as think-tank for reform efforts in a number of policy areas, including international taxation.

The OECD is composed currently of thirty full members although there are plans for enlargement. According to recent plans, it may be expected that 6 to 10 countries could join by 2012, potentially raising membership to 40 countries. Chile, Israel and the six newest EU countries (Estonia, Latvia, Lithuania, Cyprus, Malta and Slovenia) are amongst the countries that are well placed to become new OECD members. This enlargement would reduce the falling threshold of global output from its members in the recent decade as regards the new rising economies. Issues concerning membership and increased cooperation with non-members will probably be discussed during the OECD 2007 ministerial meeting. The question then is if it expected also a rise in the profile of OECD, specially in terms of its influence in the tax field?

Within the OECD, the Committee on Fiscal Affairs is the main OECD body that drives international tax reform efforts, including revisions to the OECD model tax treaty and Commentary and the transfer pricing guidelines. The CFA brings together senior officials from all thirty-member governments who play an active role in formulating and implementing tax policies and provides a forum for exchanging views on tax policy and administrative issues. Although the OECD Secretariat and government officials generally are the main active parties, there is frequent consultation with outside institutions, including business representatives. The Centre for Tax Policy and Administration (CTPA) plays a supporting role to the CFA, namely in setting tax standards and guidelines, mutual assistance, supporting national tax reforms, resolving tax disputes, tax administration and engaging non-OECD economies.

It is interesting to note that there is an increasing cooperation of the OECD with non-OECD economies. Their input consists of participating as observers in the CFA meetings (Argentina, Chile, China, Russia and South Africa) and a dialogue with over 70 non-OECD economies for example through the OECD Multilateral Tax Centres. Apparently, the CFA mission statement requires it to encourage the integration of non-OECD countries into the world economy by adopting its standards, guidelines etc. This assistance includes also advising those countries to secure their tax bases, perhaps by using the techniques developed through the years by OECD member countries. The programme for non-OECD countries falls into 2 main categories. The first category includes core CFA topics such as tax treaties, transfer pricing and exchange of information. The second category includes three demand driven programmes with a strong development focus, such as the new partnership for African development (NEPAD), Middle East and North Africa (MENA) and South Eastern Europe (SEE).

But who better to acknowledge the OECD work in the tax field than its Secretary-General. According to Angel Gurría (OECD Secretary-General), “tax is one of the big success stories of the OECD. Our engagement with our members and key non-OECD economies has enabled us to maintain our lead role in setting the rules of the game for international taxation. Our analytical work provides governments with unparalleled information on the design and implementation of our tax systems”.

In fact in the second half of the 1990s, the OECD launched more and more ambitious and multilateral plans such as the one aimed at cracking down harmful tax practices in member states and in non-OECD jurisdictions. A good example has been the recent Global Forum on Taxation efforts on improving transparency and to establish effective exchange of information. Behind the scenes, the influence of the OECD is growing and that is demonstrated by the presence of OECD Multilateral Tax Centres in Ankara, Budapest, Seoul, Mexico City and Vienna.

So is this a world tax organization in the making?

At this stage, I would say no. One thing appears to be the OECD extending beyond its borders by for example attacking low-tax jurisdictions, attempting to set widely accepted standards and guidelines and improve mutual assistance. Another is calling the OECD a world tax organization in the making. The step (although probably in the mind of some) is still far-fetched.

I should mention that although highly applauded, an organization such as the OECD does not live without some contestation to its legitimacy. For example, the Center for Freedom and Prosperity, a Washington-based lobbying organisation, has been very critical of the role of the OECD in tax matters. Their recent attempt includes supporting the inclusion in the US spending bill of language, which would restrict OECD funding for international tax harmonization schemes!

I would say even if the OECD would probably have to pass through some difficult waters in the future, now it is time to cash in the credit for the good work done so far in the field of international tax. Although specific topics may be criticized individually by being sometimes over protectionist, the overall has been more than positive.

Let’s see the next chapters!


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