UK, US, OECD oppose developing country interests on tax

We've just come across (following a tip-off from Mark Herkenrath) this document, which is Britain's submission to a UN inquiry launched last July into a possible "strengthening of institutional arrangements to promote international cooperation in tax matters."

Here's what this is about. There are two main forums that have a global mandate to address issues in the field of international tax. The first, representing rich countries, is the OECD. The second, with a membership mix that potentially far better represents the interests of developing countries, is the United Nations.

Few prizes for guessing which body has made all the running. It's the OECD, of course.

We have been massively critical of the OECD in a number of areas. The shape it has given to the international tax architecture massively penalises developing countries in many ways. One is by encouraging and protecting international financial secrecy - see here or here; another concerns its appalling rules for taxing multinational corporations - see here and on its work on tax treaties.) Secrecy encourages vast illicit sums to flow from developing nations to developed ones; the OECD's transfer pricing rules encourage huge losses of tax revenue to developing countries, in favour of rich-world multinationals, and the system and principles set up by the OECD on tax treaties (which allocate taxing rights between countries) are skewed in favour of rich countries, to the detriment of developing countres.

The UN Tax Committee is woefully, massively, under-resourced, and whenever any of its members seek to do anything that would challenge the OECD's dominance, malign interests (and we at TJN have watched this happen, from ringside seats) interfere to stop the UN getting too uppity. As a result, the UN's impact on this huge and crucial area has been massively curtailed: it has, to be honest, achieved rather little, all things considered. This has left the OECD to rule the roost.

Which is, of course, just the way that many OECD countries and tax havens, or secrecy jurisdictions, like it.

What they love to say, to counter the proposal to upgrade and strengthen the UN Tax Committee, is that developing countries, poor dears, should bring themselves under the wing of the OECD when discussing complicated international tax matters. Or, better still, just keep quiet and take the medicine that rich countries feel like periodically doling out.

The basic formula is pretty simple really.

In general, the tax havens, which receive huge illicit flows, don't want the UN tax committee to get any more resources, or to be upgraded to an intergovernmental body to give it greater relevance on the world stage. Meanwhile, people who have the interests of ordinary people in developing countries at heart do want the UN Tax Committee strengthened and upgraded.

We've spoken about this on several occasions in the past, though it's not always something that's easy to demonstrate. Well, we thought we would test out our words by looking at the the range of comments by individual countries on the UN's July 2010 proposal to strengthen and upgrade the committee. Here's a rough breakdown.

Bangladesh supports strengthening and upgrading the committee. Brazil supports strengthening and upgrading the committee. Chile supports strengthening. China supports strengthening and updgrading. Qatar supports strengthening and upgrading. South Africa supports strengthening. (There are various other developing country statements which aren't a clear enough expression one way or another, so we'll leave them (and to be honest we haven't had time to survey every last response).

Now look at the list of countries that oppose giving developing countries a stronger voice.

The United States. The United Kingdom. Switzerland. Liechtenstein. Japan. The European Union, for goodness' sake (blame lobbying by Luxembourg, the UK and others.) Canada. Australia. New Zealand.

The pattern couldn't be clearer, could it?

The OECD, and OECD countries, will resist any shift of power away from themselves to the UN. This is related closely to tax havenry, and this position shows how desperate they are to protect their financial sectors and the positions of their own multinationals as developing countries seek a fairer share of the benefits flowing from global trade and investment.

Britain, we feel, speaks with a particularly forked tongue on this issue. Just look at its statement:

And then this:

Point 7 is the refusal. Point 8 says, more or less, 'we want to protect our tax haven business in the City of London.' Point 9 is the most idiotic. This will cost money, it says! Far better to give developing countries dollops of aid, the official line goes, and let's not get too bothered about all that tax haven activity we're hosting.

Given that developing countries are losing far more in lost tax revenues and in illicit outflows to tax havens than they are receiving in foreign aid - this would seem like as pure as example as any of the disjointed thinking that characterises OECD countries' approach to offshore.

It is nothing short of a disgrace.