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OECD initiatives

Some observers are unhappy with OECD’s role regarding international tax policies

OECD initiatives to coordinate tax systems internationally have made progress, but critics argue they are biased in favour of the OECD’s prosperous member nations.
Power lines and bridges in Lagos, Nigeria: infrastructure matters – and national governments need money to rise to the responsibility. picture alliance / ASSOCIATED PRESS / Sunday Alamba Power lines and bridges in Lagos, Nigeria: infrastructure matters – and national governments need money to rise to the responsibility.

Over the past decades, the OECD (Organisation for Economic Co-operation and Development) has been the main multilateral actor in dealing with international tax issues. In 2009, it established the Global Forum on Transparency and Exchange of Information for Tax Purposes. The goal was to facilitate the implementation of shared standards. The Forum has over 160 members (including many developing countries). Important approaches include exchange of information on request (EOIR) and automatic exchange of financial account information (AEOI).

In 2013 the OECD and the G20 launched the Base Erosion and Profit Shifting (BEPS) project, another notable initiative. The idea was to fight tax avoidance by multinational corporations, and 15 tangible actions were defined in 2015. They range from dealing with challenges of digitalisation to mandatory disclosure rules and country-by-country reporting.

To facilitate worldwide implementation, the OECD/G20 formed the Inclusive Framework (IF) in 2016. It currently has over 140 members. In 2021, 137 IF members concluded an agreement to tackle tax problems arising from the digitalisation of economies. It is called the two-pillar solution. While Pillar One is about the profit allocation of large multinational corporations among countries, Pillar Two sets a global minimum tax rate of 15 %.

The work of the Platform for Collaboration on Tax (PCT) on challenges of the international tax framework is also worth mentioning. This joint initiative of the IMF, the World Bank Group, the UN and the OECD is providing capacity building and technical assistance to countries on tax matters.

Critics, however, argue that many of these ongoing initiatives are fundamentally unfair because developing countries cannot participate on an equal footing and are therefore far less likely to benefit. Some estimates, for example, suggest that the reallocated tax revenue under the Two-Pillar solution will go to a handful of rich countries. The benefit to developing countries, by contrast, was deemed to be unclear and potentially even negative.

Related concerns have been expressed regarding the BEPS. Indeed, the BEPS project initially did not even consult developing countries. They were only involved at a later point through the IF. Although the BEPS project aims to curb tax abuses by multinationals, existing international tax rules do not adequately require taxation at source, which is typically in the developing countries, where the economic activity takes place. Moreover, current international standards do not prevent the anonymous ownership of assets. Anonymity, of course, facilitates illicit flows.

Experts, tax-justice advocates, and policymakers from developing countries thus express the worry that the solutions proposed may be more relevant to developed countries than to developing ones. The fact that negotiations in OECD-led initiatives are not open to the public but take place behind closed door adds to the discontent. According to experts from the Norwegian Academy of International Law (NAIL, 2022), OECD-led initiatives lack the political inclusiveness which the representation of – and accountability to – all nations would bring. 

Norwegian Academy of International Law, 2022: A UN Tax Convention? 

Altayesh Taddese Terefe is an economist who works for the International Tax Compact (ITC), which is implemented by GIZ. This essay expresses her personal views and not official ITC or GIZ policy.