Tuesday, March 20, 2012

India slams the OECD's arrogance on international tax

A strong letter from India's permanent representative to the United Nations has appeared on the website of the United Nations Department of Economic and Social Affairs, which pulls no punches. In fact, it's quite shocking in its bluntness.

First, a little bit of context. Two organisations dominate the area of international tax and transparency: the OECD, a club of rich countries, and the United Nations via its Tax Committee, which affords developing countries a stronger voice. No prizes for guessing which organisation has jealously guarded its terrain, created rules to help its citizens at the expense of the other's, and at every opportunity sought to undermine the other. This letter follows meetings at the UN last week in New York, on March 14th and March 15th, in this area, and it comes amid a significant power shift in the world as powerful developing countries like India and China start to flex their muscles in the field of international tax. Last year, as we noted at the time, one delegate said:
"the OECD should not try to dominate the development of international tax issues: no more Rule Makers forcing Rule Takers to accept what the Rule Makers decide."
(India is also currently in a big fight with the telecoms giant Vodafone, and the issue of how developing countries are to tax multinational corporations is a hot potato there.)

Now to that new Indian letter. It is worth reading in full, but here are a couple of highlights:
5. India is also aware of the concerns of the OECD on the work of the United Nations to develop standards in the areas of international taxation and transfer pricing due to the reason that it would be duplication of work. India does not agree to this concern for the following reasons:

(i) OECD Model Tax Convention and OECD Transfer Pricing Guidelines have been developed on the basis of consensus arrived at by the Government of 34 countries (all developed countries.) These guidelines only protect the interests of OECD countries which are parties to such convention. Since the Governments of developing countries are not party to the guidelines, it is improper to suggest that they represent international agreed guidance knowing fully well that concerns of developing countries have not been taken care of in the OECD Model Convention and OECD Transfer Pricing Guidelines (our emphasis added.)

(ii) It is inconceivable as to how a standard developed by Government of only 34 countries can be accepted by Government of other countries as 'standard' of sharing of revenue on international transactions between source and resident country, particularly when it only takes care of the interest of developed countries and has seriously restricted the taxing powers of source country.

(iii) Views of OECD and UN on sharing of tax revenue by developing and developed countries are not the same and accordingly concerns of duplication of efforts should be ignored.
That is a devastating critique of the OECD's position.

We have been making these arguments for a long time -

For more on this, see here or here.


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