Advancing international tax cooperation
On 3 April, the 14th session of the Committee of Experts on International Cooperation in Tax Matters will kick off in New York. Running through 6 April, the event will spotlight a range of topics aimed at advancing international tax collaboration. Ahead of the session, UN DESA Voice reached out to the team of experts in UN DESA’s Financing for Development Office, including Economic Affairs Officers Ojeda Alvarez and Tatiana Falcao and Michael Lennard, the Chief of the International Tax Cooperation Unit. They shared more details on the work of the Committee and the role that tax cooperation plays for development.
How has the Committee strengthened the UN’s role in international tax cooperation?
“The Committee of Experts on International Cooperation in Tax Matters (Tax Committee) is a subsidiary body of ECOSOC tasked with addressing issues of taxation, paying special attention when doing so to developing countries and countries with economies in transition.
In this context, the Tax Committee is responsible for keeping under review and update the United Nations Model Double Taxation Convention between Developed and Developing Countries (the UN Model Tax Convention), the Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries, and for making recommendations on new and emerging issues that could affect international cooperation in tax matters.
The Tax Committee also aims to enhance and promote international tax cooperation among national tax authorities and assesses how new and emerging issues could affect this cooperation. In addition, the Tax Committee makes recommendations for capacity building and for providing technical assistance.”
What are some investment options low-income countries can take advantage of with effective and efficient use of tax incentives?
“Low-income countries [LICs] only have limited opportunities to take advantage of investment options with effective and efficient use of tax incentives. Their fiscal cost can be high, thus diverting resources from other public spending or requiring higher taxation of other activities. It is the sovereign decision of countries whether to offer such incentives.
Some carefully crafted incentives that were kept under continuous review have contributed to investment and development. International tax cooperation can play an important role in helping LICs to run ex-ante and ex-post cost-benefit analyses to determine the effectiveness and efficiency of tax incentives policies.
It can also help countries to develop fiscal policies that directly or indirectly promote investment. This prevents the wasteful use of incentives for projects that would proceed anyway, as well as investments that will depart the country or become loss-making as soon as the incentive ends.
In any case, good governance is critical for the effective and efficient administration of tax incentives. Transparency is necessary to facilitate accountability and reduce opportunities for rent seeking and corruption.”
What new or emerging issues could affect international tax cooperation?
“The involvement of civil society and the press in scrutinizing the tax affairs of multinational enterprises, as well as publicizing the tax incentives offered for investment, has added a new dimension to the tax-debate.
It is already influencing policy decisions, such as the development of OECD/G20 country-by country tax reporting rules that are seen as especially benefitting developing countries. The call for such reports to be made publicly available will continue.
Another critical point is the way in which developing countries can access the information they need to support their tax bases. Some means for achieving the necessary “information capture”, such as automatic exchange between tax authorities, are very promising. However, there is a widespread recognition that countries are not yet able to participate in automatic exchange, for example due to low information technology capacity, high cost and limited resource availability. The need to respect legitimate taxpayer confidentiality applies in any case.
The necessary level of engagement in an economy before the revenue authorities of that economy can tax profits made there under tax treaties is another increasingly important issue. Finally, increasing scrutiny on how truly global the participation in global tax “norm-setting” has been will result in greater importance for the UN.”
What is expected to come out of this session?
“The session will see the effective completion of the work programme of the current Membership of the Committee. This includes the 2017 update to the UN Model Tax Convention, which is used by many developing countries in the negotiation of bilateral tax agreements, and which preserves robust taxing rights to the capital importer; an updated UN Practical Manual on Transfer Pricing for Developing Countries (which assists in countering international profit shifting) and a Handbook on Selected Issues in Taxing the Extractive Industries.
The Committee has already updated the UN Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries. The Committee is also expected to lay out an initial path for future Committee work on international tax dispute resolution, the taxation of the digital economy and on environmental tax issues for developing countries.”
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