The OECD club of rich countries is battling poorer states over a
controversial global tax deal that could affect multinational tax
schemes
Martin Hearson and Nicholas Shaxson
Wednesday July 27 2011
guardian.co.uk
Visiting South Africa and Nigeria last week, David Cameron wrote in a
South African newspaper about the benefits of "effective tax systems
[http://www.businessday.co.za/articles/Content.aspx?id=148545"
title="]" ? but failed to mention aggressive tax avoidance by
multinational corporations, something that South Africa's finance
minister has called "a serious cancer eating into the fiscal base
of many countries".
Meanwhile, the British government is locked in battle with South
Africa and other developing countries over a controversial global tax
deal, which is due to be finalised in Geneva on Wednesday; a deal that
could potentially have a large impact on multinational tax schemes. It
has become a rather hot potato.
On one side of this fight sit Britain, the US, the EU and other rich
countries, which want to maintain the pre-eminence of the OECD
(Organisation for Economic Co-operation and Development), a club of
rich countries, as the body that dominates the setting of global tax
rules. On the other side, along with South Africa, sit Argentina,
Brazil, China, India, Mexico and other developing countries, which
want developing countries to have a bigger voice.
When a multinational from one country invests in another, these global
rules form the framework for deciding which country gets to tax which
bits of the resulting income, and to what degree. Current OECD-
dominated rules tend to skew taxing rights towards richer countries,
and do a poor job of stopping multinational corporations (typically
from rich countries) setting up schemes to avoid tax, often via tax
havens.
The developing countries are seeking to strengthen the UN's own tax
committee ? the committee of experts on international co-operation in
tax matters [http://www.un.org/esa/ffd/tax/" title="] ? which could
potentially represent and advance the interests of developing
countries far better than the OECD ever can [http://www.un.org/esa/ffd/
tax/2011SGReport/RepliesMS.htm" title="]. And, as Chile's permanent
mission to the UN [http://translate.google.co.uk/translate?
hl=en&sl=es&u=http://chileabroad.gov.cl/onu/en/&ei=4-
YvTs35LcHJhAfa140b&sa=X&oi=translate&ct=result&resnum=1&ved=0CCEQ7gEwAA&prev=/
search%3Fq%3DChile%25E2%2580%2599s%2BPermanent%2BMission%2Bto%2Bthe
%2BUnited%2BNations%26hl%3Den%26prmd%3Divns" title="] noted recently,
the UN tax committee "is the only body with global membership in which
these issues can be discussed [http://www.un.org/esa/ffd/tax/
2011SGReport/Chile.pdf" title="]".
More than a quarter of G20 member states - including Mexico, its next
chair - are on record in favour of a stronger committee, and now,
after years of relative quiescence on this crucial issue, developing
countries seem to be finding their voice.
"The day is gone," said a speaker at a recent UN meeting in New York,
"when there are rule makers and rule takers [http://www.un.org/News/
Press/docs/2011/ecosoc6473.doc.htm" title="]."
Argentina and China tabled the proposal earlier this year to upgrade
the status of the committee, but the rich countries are justifying
their opposition to this with rather convoluted logic, saying that
sticking with a dominant OECD would "maximise synergies" and "avoid
duplication".
This issue has been discussed before, and the UK has long opposed
reform. Back in 2008, British diplomats spiked a similar proposal at a
UN development conference [http://www.guardian.co.uk/business/2008/sep/
28/globaleconomy.taxavoidance" title="]. In answer to a written
question in parliament in March, Treasury minister David Gauke curtly
reiterated the UK's position opposing this route to giving developing
countries a greater voice.
To be fair, some argue that while the UN may be the most legitimate
forum to deal with international economic issues, it isn't always the
most effective. Even UN secretary general Ban Ki Moon recognised as
much last month: the UN is a universal forum, with unique legitimacy,
he said, "but legitimacy alone is not enough".
The UN's tax committee is probably one of its more effective bodies.
With scant resources, it takes complex global tax standards developed
by rich countries through the OECD, and seeks to adapt them to better
reflect the needs of developing countries. For example, it produces a
model tax treaty used by developing countries when they negotiate tax
treaties with rich countries. "Without that UN model [tax treaty],
geez, negotiations would be a hard time," one African tax official
told ActionAid earlier this year.
Tax inspectors from developing countries say they need the work of
both the OECD and the UN to do their jobs well. But the OECD cannot be
allowed to dominate proceedings. As another African tax official said:
"The UN should do more. We are losing a lot from the OECD."
The UK, US and others should listen to developing countries and
support the long-needed reform for which they are calling.
guardian.co.uk Copyright (c) Guardian News and Media Limited. 2011
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