Wednesday, May 11, 2011

Letter to OECD on tax and development

When the OECD in January announced its intention to set up an informal task force on tax and development, we at TJN gave it a (very) cautious welcome. It is welcome, because it shows that for the first time in history, international institutions are beginning to take seriously the idea that tax might play a major role in the development field - in state-building, improving governance and so on (see some reasons well summarised here.) Something that's always been blindingly obvious - but for ideological reasons, the anti-taxers kept this stuff under the carpet.

But we were extremely cautious about our welcome, because the OECD, quite frankly, has taken a wide range of truly appalling decisions in the field of international tax, transfer pricing and secrecy. See here and here, just for instance. And there is this other thing: when new areas of debate open up in the area of international tax and tax havens, we see the OECD moving in aggressively to dominate the discussions - and as we have demonstrated on several occasions such as here - often making unprecedented invasions of other organisations' turf - notably that of the United Nations Tax Committee -- to try and assert its views. So this is another reason for great caution.

A group of non-governmental organisations including TJN has now produced a long letter to the OECD, following a task force meeting in Paris last month. It is available here. Compared to what we've seen on this blog, it's a very polite letter. It highlights something we've been hearing behind the scenes recently - that a several developing countries are beginning to get more active and interested in this big broad area.

In essence, the letter is extending a cautious welcome to the initiative, but making a number of critical points. Notably:
  • there seems to be no effort to build capacity in developing countries to assess the distributional impact of individual tax measures and of overall fiscal policy
  • In the context of tax and state-building, there is a greater need for research into best practice with regard to taxpayer education and the role of civil society in shifting tax morale
  • The OECD may well not be taking the right on helping developing countries as regards transfer pricing, and there is a need for the United Nations (TJN: which is in a sense a rival to the OECD in this area, which is the legitimate forum for developing countries to be represented, and which the OECD has invasively undermined) to be given greater political and financial resources to work in this area. The letter shies away from uttering the dreaded words 'unitary taxation' or similar terms - but they allude to it)
  • Four developing countries called for more work on transparency of reporting profits; particular attention could be paid to questions such as 'How costly is it for LDCs to obtain information?”, “Legally mandated disclosure of local statutory accounts” and “Voluntary disclosure of local statutory accounts.”
  • More work could be done on mapping the range of tax incentives that developing countries offer.
  • While the group should emphasise work on transparency in the reporting of profits and on tax exemptions, it should de-emphasise work in other areas, to reduce duplication of effort.
  • The Secretariat should prepare a document clarifying the Task Force’s modus operandi, which is currently rather unclear.
  • Currently, only one task force activity envisages civil society participation. This should be revisited.
The document contains a number of specific comments on the proposed action plan too.

The IMF is also working in this area - see its latest work here, and our commentary, here.

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