Mr. Eliott Harris Assistant Secretary-General for Economic Development and Chief Economist

Opening Remarks
at the ECOSOC Special Meeting on International Cooperation in Tax Matters

Excellencies,
Distinguished Delegates,
Ladies and Gentlemen,

Thank you for the opportunity to address the ECOSOC Special Meeting on International Cooperation in Tax Matters.

I am pleased to see the ongoing enthusiasm for a topic that is sometimes considered dry and technical, but that is truly at the heart of our efforts to implement the 2030 Agenda for Sustainable Development.

Taxation provides a critical source of finance to governments to deliver public services that are vital for sustainable development. International cooperation is a key enabler to ensure that countries can collect their appropriate share of taxes while minimizing negative impacts on other economies.

Before I go further into the substance, I would also warmly welcome the new membership of the Committee of Experts on International Cooperation in Tax Matters here in New York. I very much look forward to the update on your work.

This morning, we will hear several expert voices on taxation and the digitalization of the economy.
Large companies today are offering significant amounts of products and services in a country without having any physical presence in that country.

However, physical presence has historically been required to subject foreign companies to corporate income tax and to the obligation of collecting value-added taxes (VAT).

The need to adapt national and international tax rules to the new business models made possible by digital technology has been recognized for a while, but overall progress has been incremental.

Let me start with the encouraging news that some important progress has been achieved.

In the area of value-added taxes, since 2003, the European Union requires VAT to be collected by non-EU suppliers who sell digital products and services in the EU.
In 2015, the joint G20/OECD project on Base Erosion and Profit Shifting (BEPS) resulted in an internationally endorsed recommendation that foreign suppliers of digital products and services should collect and remit VAT to the countries where their products and services are consumed.

However, a large number of developing countries have still not adopted the necessary changes to their laws and administrative practices.

I therefore want to encourage these countries to take account of the positive experience of countries like South Africa, which will be presenting this morning.

I also invite the experts and participants to come up with suggestions on how to assist developing countries in making sure that VAT is collected for digital products and services sold in their territories.

Unfortunately, progress has been much slower in the area of corporate taxation.

The internationally agreed rules incorporated in a network of bilateral tax treaties still require some form of physical presence in a country before a country can levy its income tax.

A new sense of urgency has emerged among many developed and developing countries, and some have already taken, or are considering, unilateral actions. However, such actions can create additional challenges.

Only a month ago, the OECD, which has been working on the issue for several years, released its “Interim Report on the Tax Challenges Arising from Digitalisation”, which calls for an internationally-agreed long-term solution by 2020.

I am pleased that the Tax Committee has put taxation and the digitalized economy on its agenda, since it can have significant influence on the international community towards finding a universal solution.

The second topic of today’s special meeting will be taxation projects funded by Official Development Assistance (ODA).

Some donors continue to request wide exemptions. For example from custom duties on imported goods, value-added taxes on goods and services imported or provided locally and income taxes for personnel and enterprises, with respects to the ODA projects that they fund.

According to some estimates, these exemptions can represent as much as 3 per cent of GDP in certain countries.

Without a doubt, this is a substantial amount, given that in many developing countries the tax-to-GDP ratio is well below the level that would be considered sufficient for the provision of essential public services.

Requesting tax exemptions from developing countries for ODA projects leads to several challenges.

In addition to the foregone tax revenue for these countries, tax exemptions increase transaction costs for international assistance since they require additional negotiations and contractual work.

Furthermore, they make tax administration more complicated when refunds or direct exemptions have to be processed.

There is also a risk that poorly designed exemptions create legal uncertainty and potential for abuse. Moreover, the granting of tax exemptions leads other taxpayers to demand similar treatment.

The problem with tax exemptions of ODA-funded projects is not new. In 2007, a set of draft guidelines was presented to the Committee with a view to ensure a greater consensus in this area between donors and the tax administrations of partner countries.

The Committee could consider updating and strengthening the guidelines at the technical level to capture relevant developments from the last decade.

Based on the updated guidelines, we could then revitalize our efforts to achieve greater consensus on the underlying principles.

Excellencies,
Ladies and gentlemen,

The thematic discussions of this special meeting are highly relevant to achieving progress in international tax cooperation through coordinated efforts at the national, regional and international levels.

I again would like to express my gratitude to the members of the Tax Committee for their contributions. You have DESA’s full support for your activities.

Let me also take this opportunity to highlight that DESA will continue to work with its partners – the IMF, the OECD and the World Bank – in the inter-agency Platform for Collaboration on Tax.

The Platform held its first global conference on “Taxation and the SDGs” in February this year.

The Platform Partners’ Statement at the Closing of the Conference provides a framework for the future activities of the Platform.
The implementation has already started. You will hear more details from the Platform partners in the final session today.

Let me conclude by stating that DESA remains firmly committed to advance the discussion on international tax cooperation through its support to ECOSOC, the Tax Committee and the Platform for Collaboration on Tax.

Together, we can achieve our shared goal to realize the full potential of taxation in mobilizing the necessary resources for sustainable development.

Thank you for your kind attention.

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