Litany of failure: new briefing sets out OECD’s manifold shortcomings in international tax talks

For over sixty years, the Organisation for Economic and Cooperation has held dominion over the stewardship of international tax negotiations. In that time, progress achieved in putting a stop to crossborder tax abuse, which now costs governments around the world some US $480 billion a year, has been meagre at best.

With negotiations on a new framework tax convention now moving forward at the United Nations, the OECD’s leadership of standard setting on international taxation is for the first time in doubt. The move to initiate talks at the UN follows an historic resolution brought forward by the Africa Group, which was in turn motivated by frustration over the exclusionary dynamics of the OECD process. It can be argued that the OECD, as an institution mandated only to represent the interests of 38 advanced economies that make up its membership, was never an appropriate forum to tackle a problem which is, but it very nature, global. As demonstrated in the State of Tax Justice report, OECD member states are responsible for facilitating the vast majority of revenue losses to international tax abuse and, as such, have a vested interest in impeding the kind of radical reform that is so badly needed.

A new briefing produced by Tax Justice Network in collaboration with a coalition of allies systematically unpacks the various arenas in which the OECD has proven itself unfit to lead negotiations on international tax cooperation.

At the top of the list is the manifest inadequacy of its proposed ‘two-pillar solution’ to the problem. The first pillar aims to reallocate the profits of multinational companies to the jurisdictions where consumers are located, thereby countering the practice of profit shifting which lies at the heart of corporate tax abuse, while the second pillar sets a minimum corporate tax rate of 15 percent so as to prevent the ‘race to the bottom’ engendered by dysfunctional tax competition. Pillar One is limited to a tiny fraction of the profits of the largest multinationals, however, while the rate of 15 percent set by Pillar Two is likely to act as a ceiling rather than a floor, thereby exacerbating rather than redressing the very problem it purports to solve. Independent analyses have demonstrated that the ‘two-pillar solution’ would have little impact in real terms, while what benefits might flow from the deal would accrue almost entirely to the Global North.

The insufficiency of its proposed solution to international tax abuse stems from the failure to meaningfully incorporate the voices of Global South nations into the negotiating process. While the ‘Inclusive Framework’ mechanism was established in 2016, ostensibly to facilitate the participation of non-OECD members in the ‘Base Erosion and Profit Shifting’ initiative, proposals brought forward by the G24 in representation of developing nations were ignored in favour of an agreement negotiated bilaterally by the United States and France. It was against this backdrop that the Africa Group opted to table Resolution 78/230 for the commencement of talks on a more inclusive process at the UN.

Failures of inclusivity and effectiveness are not the only areas when the OECD has come up short, however. The existing regime of international taxation, which makes crossborder tax abuse relatively straightforward, was put in place as the major European empires were in decline and was designed to protect the economic interests of former colonial powers. As a result it has deeply racialised impacts, systematically constraining the fiscal space of majority non-white nations of the Global South and, in turn, their ability to fund fundamental public services. Moreover, despite the fact that the OECD counts most of the world’s most nefarious tax havens among its members, the only country it has targeted for sanctions on the basis of tax haven policies is the tiny African state of Liberia.

When challenged over the structurally racist impacts of its proposed ‘two pillar solution’ by a group of eight UN independent experts in December last year, the OECD simply opted to ignore their request for a response.

Unfortunately, this failure of accountability coheres with a pattern of conduct by the organisation in recent years, which has also seen repeated controversies over shortcomings in adhering to professional standards. Perhaps most notably, as the Africa Group’s initiative to pursue more inclusive negotiations at the UN gained traction, the OECD took the unprecedented step of writing to various of its member states’ ambassadors questioning the fitness of the UN to lead such talks and calling on them to block the proposals.

Several of the OECD’s leading figures have meanwhile been mired in controversies over questions of autonomy and independence. In 2022 the former head of the OECD’s Centre for Tax Policy and Administration, Pascal Saint-Amans, departed the organisation and immediately took up a position with lobbying firm Brunswick Group. During her time with KPMG, current head of tax policy Manal Corwin meanwhile co-authored a tax planning proposal for Microsoft that would lead to a major tax abuse scandal, while Secretary General Mathias Cormann has likewise faced controversy over allegations he profited from secretive dealings with Luke Sayers, who was head of Price Waterhouse Coopers Australia during the TaxLeaks scandal.

In a world of multiple enmeshed crises, from climate change and runaway inequality to the cost of living and recovery from the Coronavirus pandemic, the continued syphoning of revenue away from government coffers represents an urgent human rights concern. Modelling by the Government Revenue and Development Estimations initiative at the Universities of St Andrews and Leicester demonstrates that, were it not for the revenue lost to crossborder tax abuse each year:

• 15 million people would have their right to basic water.
• 32 million their right to basic sanitation.
• 2 million additional children would attend school.
• 101 additional children would survive every day: 36,900 each year.
• 11 additional mothers would not die during childbirth: 3,999 each year. 

It is for the reasons set out in this briefing that the move to shift negotiations on international tax cooperation away from the OECD and to the more inclusive forum of the UN is so critically important. The most ubiquitous counterargument deployed by those nations that would seek to maintain the status quo is that the UN process would risk duplicating efforts at the OECD. While the latter organisation undoubtedly has valuable technical expertise and experience to offer, the United Nations is the only forum that can provide the legitimacy, inclusivity, transparency, and accountability that is a precondition to the just and comprehensive reforms that are so badly needed, however. The UN can and must provide a radically different process and outcome to that which has unfolded at the Organisation for Economic Cooperation and Development.

Litany of failure: the OECD’s stewardship of international taxation was produced by Tax Justice Network in collaboration with the Center for Economic and Social Rights, Centro de Estudios Legales y Sociales (CELS), the Economic Policy Working Group at ESCR-Net, the Global Network of Movement Lawyers at Movement Law Lab, the Government Revenue and Development Estimations project (University of St Andrews/University of Leicester), Minority Rights Group, Tax Justice Network-Africa, and Steven Dean, Professor of Law, Boston University School of Law.