Reflections on the Third Plenary Meeting of the OECD Task Force on Tax and Development
The OECD’s Task Force on Tax and Development is neither the most streamlined of these affiliates – it has more than 100 members – nor the one closest to the centre of power. It to a large degree represents the interests of non-member developing countries in this rich country club. But the meetings of the Task Force provide good opportunities to observe progress – or lack of progress – in making it easier for the governments of poor countries to raise revenue efficiently, effectively and fairly.
There was quite a lot of good news at the Third Plenary Meeting of the Task Force recently held in Cape Town. The headline story is that the OECD Centre for Tax Policy and Administration is to put its weight behind designing and creating an organisation named “Tax Inspectors Without Borders”. The idea is old. Many tax administrations in poor countries are out–gunned in expertise and experience when they try seriously to audit the tax returns of large transnational corporations with complex business affairs that cross many national borders – and with more well–paid accountants and lawyers than Malawi, for example, could dream of. Why not mobilise the network of international tax experts who can work temporarily for the Malawi Revenue Authority when it faces a defined, difficult problem on which it knows that it needs help? There are many potential obstacles to the success of “Tax Inspectors Without Borders”, but the potential benefits are such that it would be silly not to give it a try. The chances of success are all the greater because the OECD will try to find a sustainable financing mechanisms, avoiding the easy route of full donor funding, that all too often generates problems of its own.
Less dramatic than “Tax Inspectors Without Borders”, but more important perhaps in the long-term, were the range of positive steps reported to improve the capacity and opportunity for tax administrations in poor countries to exchange information about “problem” (non-) taxpayers with each other and the tax administrations of OECD governments. Neither the “Global Forum on Transparency and Exchange of Information for Tax Purposes or the “Multilateral Convention on Mutual Administrative Assistance in Tax Matters” are terms to set the heart racing. But they are at the heart of real progress in information exchange. It was noticeable how far the private sector members of the Task Force were willing to support both improved information exchange and the initiative to establish “Tax Inspectors Without Borders”. What is in it for them? They represent transnational corporations. Measures to standardise tax arrangements across countries, and to make them more stable, predictable, and transparent within individual countries, are valued by many transnational companies. To some extent, their interests do align with those of national tax administrations.
There was no such harmony within the Task Force over the issue of “Country–by–Country–Reporting” by transnational corporations. This has been a contentious issue. The proposal that transnational corporations should provide accounts that are this aggregated to the level of every country in which they operate comes from campaigning international NGOs. The companies have opposed it. Governments have taken diverse positions. Tax experts are often left arguing about exactly what Country–by–Country–Reporting would mean in practice. The issue was left parked for the moment.
Another slightly sour note was struck in the discussion on the efforts of various international organisations to undertake “benchmarking” of the structures and performance of tax administrations in developing countries. This has become routine for OECD countries, but is new for developing countries. Everyone seems to think that it is a good idea – possibly too much so. Several international organisations each want to do it, each in their own way. Attempts at coordination have come to nothing. Spare a thought for fragile tax administrations in small poor countries. They may now be asked to provide answers to long and complex questionnaires several times, each in a slightly different form. This competition among international organisations is counter–productive.
But let me end on a high note. It was a delight to hear a Commissioner from the Rwanda Revenue Authority present the details of an excellent study that the Authority has conducted on what are often called “tax incentives”, but are better labelled as “tax exemptions”. These are the bane of most national fiscal systems in poor countries in particular. Most exemptions are in practice gifts or trades from politicians to specific firms or friends. It was really heartening to hear the Revenue Authority list all the exemptions available in Rwanda, present estimates of the value of taxes foregone (big numbers), and name the firms who most benefit from exemptions. That presentation chimed well with a number of concrete OECD initiatives to tackle the curse of tax exemptions in developing countries.
My overall impression: the OECD is doing some seriously useful work, and providing a useful bridge between rich and poor countries over tax issues.