The Organisation for Economic Cooperation and Development (OECD) has gradually carved for itself a central role in global tax matters over the last two decades. Today, its many initiatives impact global economic activity in a variety of ways. OECD Watch summarizes and analyzes the organization’s recent activities relating to international finance and tax matters.
Base Erosion and Profit Shifting
The OECD held a signing ceremony for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS on June 7. According to the OECD, “The MLI offers concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide.” A total of 76 countries signed or formally expressed their intention to sign, including Canada, China, France, Germany, Hong Kong, Sweden and the United Kingdom, among others. Notably absent from the list is the United States.
Additional guidance was released for the implementation of country-by-country reporting (BEPS Action 13). It addressed five specific issues: “the definition of revenues; the accounting principles/standards for determining the existence of and membership in a group; the definition of total consolidated group revenue; the treatment of major shareholdings; and the definition of related party for purposes of completing Table 1 of the CbC report.”
Automatic exchange – more jurisdictions succumb
The OECD celebrated the signing of six additional competent authority agreements between Hong Kong and the following jurisdictions: Belgium, Canada, Guernsey, the Netherlands, Italy and Mexico. These added to their existing agreements with Japan, Korea and the United Kingdom, and moves the territory toward fulfilling its pledge to implement the automatic exchange of financial account information.
Panama deposited its instrument of ratification for the Convention on Mutual Administrative Assistance in Tax Matters, which entered into force July 1. Guatemala also ratified, while the United Arab Emirates, Kuwait, and Lebanon signed the convention, bringing the number of signatories to 111 jurisdictions. The Bahamas formally indicated an intention to sign, as well.
The OECD also released new guidance for implementing the Common Reporting Standard. It included a new series of CRS-related Frequently Asked Questions, and a second edition of the Standard for Automatic Exchange of Financial Account Information in Tax Matters. The new edition expands on the CRS XML Schema User Guide and “sets out additional technical guidance on the handling of corrections and cancellations within the CRS XML Schema, as well as a revised and expanded set of correction examples.”
The OECD released economic surveys for Spain, Japan and Colombia. For Spain, low yields from the nation’s VAT were lamented, and increases in excise taxes on tobacco and alcohol were called for, as well as for fuel and other “environmental taxes.” The report callously waved away the impact of higher energy prices on the poor by simply noting that they “do not raise particularly strong distributional concerns.” In other words, the fixation on inequality led the authors to conclude that harm to the poor doesn’t matter so long as policies harm the rich just as well.
In Japan, the report called for raises to the minimum wage, higher consumption taxes, and new “environmentally-related taxes.” For Colombia, the report called for the lowering of taxes on wages, but urged collection of more revenue overall to fund increased spending on infrastructure and social programs.
Embracing class warfare to push big government
In a disturbingly honest statement highlighting the OECD’s big government agenda, Secretary-General Angel Gurría called for the “shake up” of globalization and the liberal international order that has brought unprecedented prosperity to the world and lifted billions out of poverty.
“Too many things are not working for too many people,” he says. Among them are “rising inequalities of income, wealth and opportunities.” But he really gives away the game when he admits that one of the problems to be solved is “limited progressivity of our tax systems.” Such an astonishing counterfactual represents a full-throated embrace of class warfare.
Highlighting this disturbing trend is a new OECD report called Bridging the Gap: Inclusive Growth 2017 Update Report. It criticizes “the ‘grow first, distribute later’ assumption that has characterized the economic paradigm until recently,” and claims that “inequalities tear at the fabric of our societies.” Much of the report could have come straight from the campaign speeches of socialists like Bernie Sanders and Jeremy Corbyn, especially its conclusion that “fiscal policy is the key mechanism for redistributing market incomes,” and recommendations for additional welfare spending to be paid for through increases of the double taxation on savings and investment.
Other areas of concern
At the behest of the Task Force on Tax Crime and Other Crimes, the OECD delivered a report on “Technology Tools to Tackle Tax Evasion and Tax Fraud.” It primarily serves an informational purpose by reporting what policies different countries have implemented to reduce certain kinds of tax evasion and fraud. Particularly noteworthy, and troubling, are two sections on the cash and sharing economies. The report ominously notes that while they are “not types of tax evasion and fraud themselves,” the cash and sharing economies “can facilitate it.” More worrisome, it noted without criticism the effort of some countries to limit cash usage or outright ban transactions above certain thresholds.
The report also noted that “the challenge of the sharing economy that means it can facilitate tax fraud and evasion is that it can be more difficult to identify the existence of business activity.” As the sharing economy continues to grow, the concern must be that it is likely to receive greater scrutiny from tax agents. This report could presage future OECD efforts post-BEPS. And another report, “Investing in Climate, Investing in Growth,” provides yet another avenue through which the OECD may choose to pursue its big government agenda – by embracing climate change activism.
Following the education efforts of a coalition of free market and taxpayer protection organizations, led by the Center for Freedom and Prosperity, about how the OECD works against the interests of U.S. taxpayers, the Trump administration indicated a willingness to curtail OECD funding.
In the administration’s proposed budget for 2018, international organizations receive a significant 31 percent cut from current levels. The budget calls for an inter-agency review to determine from which organizations those cuts are to come, with a command to “give priority to organizations that most directly support U.S. national security interests…and American prosperity.”
How the review treats the OECD, which has long worked against U.S. economic interests, will be worth watching, along with whether the U.S. Congress follows the path laid out by the administration, and how the OECD responds should a significant portion of its funding be threatened in response to its increasingly politicized and anti-growth agenda.