A U.N. proposal to get more involved in global tax policy has attracted attention from a number of officials who say the organization's involvement might make for a more inclusive plan than the one put forth by the OECD. (iStock.com/Mizoula)
"The current system led by the OECD-G-20 displays exclusive membership, top-down agenda setting, undemocratic decision-making and policy options beyond countries' implementation capacity," Masha said. "G-24 concurs with the U.N. SG that this hampers global tax reform effectiveness."
Starting roughly a decade ago, tax policy work at the OECD took on a much broader scope, and OECD personnel began to play a more leading role in discussions relative to officials from a handful of wealthy nations among an expanded group of countries known as the inclusive framework.
The Action Plan on Base Erosion and Profit Shifting, which culminated in a wide range of recommended law and treaty changes in transfer pricing and other areas in 2015, made progress in tackling the problem of income that had been completely untaxed. The OECD's current project seeks to implement a global minimum tax of 15% for large corporations and to give more taxing rights to countries where companies have customers but lack the physical presence to trigger taxation under current rules.
As the OECD has led the work on its current project — the reallocation approach known as Pillar One and the minimum tax known as Pillar Two — a growing chorus of voices has called for tax policy to be set instead by the U.N.
Guterres' eagerly awaited report outlined three paths for countries to consider in the coming months: a multilateral treaty with specific measures, a framework convention with broader pledges that could be amended with specifics available for piecemeal adoption, or a nonbinding framework that signifies political agreement, according to the report.
For Masha, the most preferable option is a framework convention, which would permit gradual problem-solving. Talks could begin under that option even without robust political consensus on particular solutions, she said.
While it's possible that political dynamics might hamper progress at the U.N. the way they have at the OECD, she said, the convention "manages technical and political aspects more effectively than the current OECD-G20 framework." Political credibility and accountability would flow from having all U.N. member states on an equal footing, according to Masha.
"Similar to the OECD secretariat's fulfillment of G-20 and OECD mandates, the framework convention secretariat would act upon 'conference of parties' and subsidiary body mandates, promoting government commitment to implementing resultant tax standards," she said.
A conference of parties is a regularly scheduled meeting between governments that join a framework convention that can agree to issue mandates. For example, the U.N. Framework Convention on Climate Change, the most prominent international platform for governments to discuss how to address climate change, has mandated subsidiary bodies to carry out work related to the 2015 Paris Agreement.
Manal Corwin, director of the OECD's center for tax policy and administration, told Law360 the U.N.'s report fails to reflect the extensive positive feedback that body received from governments about her organization's process.
"It is disappointing that the U.N. report, while purporting to analyze existing arrangements in international taxation and promising to leverage existing strengths in current international tax cooperation efforts, chooses to ignore the positive impact of the most significant changes and concrete results that have been delivered over the last two decades," Corwin said.
Furthermore, Corwin said, it's "surprising" that the U.N.'s report "chooses to completely ignore the positive perspectives on recent collaboration efforts" provided during the consultation process. A majority of the 28 submissions provided by U.N. member states were "either positive or neutral about the current state of collaboration with the OECD," she said, and ignoring these submissions resulted in "a number of inaccuracies and misleading statements."
A U.N. official who declined to be named said the organization would not publicly comment on the report until a final version is presented to member states.
The U.S., meanwhile, has been critical of efforts to move tax policy work to the U.N. A spokesperson for the U.S.' diplomatic mission to the U.N., asked about the report, referred to a letter sent to Guterres during the consultation phase. The U.S. is "deeply concerned" that the U.N. "would fragment" efforts underway at the OECD and "make it impossible to progress" negotiations on Pillar One, the letter said.
The same is true for talks on the 15% global minimum tax rule targeted at helping developing countries combat intercompany payments designed to shift profits, the subject-to-tax rule, according to the U.S. For developing countries, "the proposal of starting a similar project under the auspices of the United Nations threatens to not merely delay those benefits but deny them altogether," the letter said.
In November, the U.N. General Assembly unanimously adopted a resolution championed by the African Group calling for Guterres to prepare the report. The U.S. led a failed attempt to remove the resolution's call for the U.N. to begin discussing the possibility of developing an international tax cooperation framework or treaty instrument. More than 50 countries voted for the U.S. amendment, including all but six OECD members — Chile, Colombia, Mexico, Costa Rica, Norway and Turkey — that abstained.
Tove Maria Ryding, tax policy lead at the European Network on Debt and Development, suggested that OECD countries could seek approval for their proposals within a potential U.N. process.
"If the OECD countries have an OECD rule that they like, they can table it at the U.N., and if it would get adopted at the U.N. you would have a global endorsement," Ryding said. "Having a global endorsement at the U.N. would actually be a substantial strengthening and it would promote global implementation."
The OECD has never achieved global implementation of its rules, Ryding said. One-third of U.N. member states are not part of the inclusive framework discussions, which currently involve 143 countries, and there are doubts about whether even the U.S. or the European Union will implement Pillar One, she said. All the more reason to shift discussions to the U.N., according to Ryding.
Lyla Latif, an attorney who specializes in tax at Lai'Latif & Co. in Nairobi, Kenya, told Law360 the U.N.'s report represents a "milestone achievement" for Africa, Latin America and developing countries worldwide.
"The U.N. taking a greater role in standard setting and rule making will empower African voices," Latif said. "A new dispensation can be created that finally aligns international tax cooperation with the continent's developmental priorities."
According to Latif, the underpinnings of international tax policy — in particular the arm's-length principle — systematically favor the interests of Western multinational corporations and states that are net capital exporters.
According to Corwin, however, developing countries have benefited from the OECD's strides in global tax reform. Under the networks for exchange of information and automatic exchange of information, tax authorities have identified nearly €126 billion ($137 billion) in additional revenues, including more than €41 billion by authorities in developing countries. The organization's guidelines for value-added tax on e-commerce has also resulted in billions of dollars in revenue for developing countries, she said.
U.N. member countries are expected to discuss a final, edited version of the report after the opening of the General Assembly's 78th session in September.
Guterres' commitment that the U.N. "will take into 'account existing multilateral and international arrangements,' should assuage the concern of all, including the OECD," according to Masha. "This is an initial stride toward an inclusive and transparent global forum, fostering fairness for developing nations, enhancing state accountability and elevating development in global tax discussions."
The African Union's mission to the U.N. did not respond to requests for comment.
--Editing by Tim Ruel and Roy LeBlanc.
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