Why the year 2023 could impact how international tax policy develops

A significant deadline in the roadmap that could result in a long-term alteration in how international tax policy is formed has passed.

The deadline for comments to the public consultation on the UN Secretary-General António Guterres' report on the future of cooperation in international tax policy following the unanimous adoption of UN General Assembly resolution 77/244 of December 30 2022 was Friday, March 17.

The resolution was advanced by the UN's Africa Group, which was led by Nigeria.

Supporters of the resolution, which also include international tax and economic justice organizations, think it will start a procedure that will allow the UN to seize control of international tax policymaking from the OECD, the association of the world's largest economies. The OECD is accused of favoring tax havens and corporate lobbyists.

Anyone satisfied with how the OECD handles international taxes, on the other hand, will be hoping the secretary-general suggests modest change that will take years to implement.

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, the UN Committee of Experts on International Cooperation in Tax Matters, and other international organizations' work will all be examined in the report, which is scheduled to be released before the beginning of the UN General Assembly's next session in September.

It will also describe "potential next steps, such as the establishment of a member state-led, open-ended ad hoc intergovernmental committee to recommend actions on the options for strengthening the inclusiveness and effectiveness of international tax cooperation".

Those who want change are organizing to take more control of their own tax matters.

The first Latin American and Caribbean Summit for an Inclusive, Sustainable, and Equitable Global Tax Order will take place in Cartagena on July 27 and 28, according to José Antonio Ocampo, Colombia's finance minister, who made the announcement during the World Economic Forum in January.

The OECD/G20 Inclusive Framework's two-pillar approach is a step in the right direction, but it does not fully address the issues that developing and emerging nations have brought up, according to the minister.

Ocampo also asked academics, civil society organizations, and the private sector to a conference in Bogota on May 2 and 3 to identify outstanding issues and discuss their ideas ahead of the ministerial meeting.

The minister outlined the summit's three goals as follows: 1) “to create a space for regional tax cooperation and coordination”; 

2) “establish a dialogue between the technical and political” so that the region’s leaders are better informed when making decisions; and 

The minister outlined the summit's three goals as follows: 1) “to create a space for regional tax cooperation and coordination”; 

The statement from the minister read, "The United Nations Economic Commission for Latin America and the Caribbean has expressed its full support and is committed to taking up the baton and turning this first summit into a permanent tax decision-making body in Latin America."

When he became his country's finance minister last year, Ocampo was chairperson of the Independent Commission for the Reform of Corporate Taxation, which campaigns for more inclusive discussion of international tax rules and seeks "fair, effective and sustainable tax solutions for development".

But some observers question if reform is even possible or required.

Dan Neidle, the founder of UK-based Tax Policy Associates, which offers unbiased tax policy advice to politicians, policymakers, the media, and the general public, claims that "The OECD has taken decades to put together impressive expertise in international tax – both technical tax and reaching agreement on international tax. The UN is way behind. It doesn't have the people or the budget."

He continues, "The OECD only just achieved consensus on the pillar one and pillar two projects. None of the proponents are able to explain why the UN would find it easier to achieve consensus."

Neidle thinks that how decisions would be made would determine whether or not the UN would be supported in assuming charge of international tax policy.

"I think part of the plan in many proponents' minds is to move towards a majority vote rather than consensus approach. That has the minor disadvantage of being completely unrealistic – there is zero chance that, for example, China, India, the US, Germany, France or the UK would agree to that," he says.

The chief executive of the UK's Tax Justice Network, Alex Cobham, disagrees that the OECD is the way of the future.

On February 28, he stated, "We can’t think we’re going to find an answer under the current power structures," in a podcast hosted by economist Marla Dukharan, who lives in Barbados. "The evidence is now so overwhelming."

He continued, "Anyone still making the argument that the OECD has the technical capacity so we really should do it [international tax policymaking] there is, at best, naïve and, at worst, deeply disingenuous and is seeking to perpetuate the status quo that we know deepens the injustices, rather than ameliorating them."

According to officials, a stable, certain tax system that is not fragmented is the International Chamber of Commerce's (ICC) top priority. The ICC is the largest business representative organization in the world.

"In line with what ICC has advocated consistently throughout the past 100 years – since the first discussions on tax matters at the League of Nations – we strongly encourage further and strengthened international cooperation as long as its primary goal is to effectively reduce tax uncertainty and stabilise the international tax system – while consequently fostering cross-border trade and investment," says Luisa Scarcella.

"In relation to new efforts or initiatives in the area of international tax cooperation, we believe it will be important to avoid possible fragmentation, duplications and the creation of contradicting policy frameworks," Scarcella continues.

At the time of going to press, neither the OECD nor the UN had responded to ITR's requests for comment.

The public consultation and meetings that will discuss the pertinent topics, such as the UN Economic and Social Council Special Meeting on International Cooperation in Tax Matters on March 31, the Financing for Development Forum from April 17 to 20, the High-Level Political Forum on Sustainable Development from July 10 to 19, and a preparatory meeting for the Summit of the Future, SDG Summit, and High-Level Dial, have all been included in Guterres' roadmap for his work.

Throughout this year, the secretary-general and his team will also host a number of informal briefings and consultations with member states, international organizations, academia, business, civil society, and young people regarding the report.

In the upcoming months, the argument over how to formulate effective foreign tax policy will only get more heated. Even though the UN resolution's approval may have given those pushing for change more momentum, actual change still looks far off.

By fLEXI tEAM