Originally published by Cayman Financial Review on October 18, 2017.
The Organisation for Economic Co-operation 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.
The assimilation continues
The OECD celebrated Bahrain’s signing of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters as the 112th jurisdiction to join. Barbados and Montserrat joined the Inclusive Framework on BEPS as the 101st and 102nd jurisdictions. Mauritius, Cameroon, and Nigeria signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, bringing it to 71 jurisdictions, while Nigeria also became the 94th jurisdiction to join the CRS Multilateral Competent Authority Agreement.
Judge and jury
Fifteen jurisdictions previously given less than satisfactory ratings on peer reviews for the exchange of information upon request standard (EIOR) were subjected to a fast-track review process in the run-up to the G20 Leaders Summit in Hamburg, where the OECD was to prepare a list of “non-cooperative jurisdictions.”
Of those reviewed, Andorra, Antigua and Barbuda, Costa Rica, Dominica, the Dominican Republic, Guatemala, the Federated States of Micronesia, Lebanon, Nauru, Panama, Samoa, the United Arab Emirates, and Vanuatu were given provisional ratings of Largely Compliant with the EIOR standard, while the Marshall Islands were rated Partially Compliant, and Trinidad and Tobago was not upgraded from its previous rating of Non-Compliant.
The OECD previously established that in order to avoid being placed on the list of naughty (non-compliant) jurisdictions, two of the following three criteria need to be met: 1) At least a “Largely Compliant” rating by the EOIR standard, 2) A commitment to implement the automatic exchange standard, and 3) participation in the Multilateral Convention on Mutual Administrative Assistance on Tax Matters or a sufficiently broad exchange network permitting both EOIR and AEOI (a U.S-only carveout thanks to FATCA).
Following the fast-track reviews, only Trinidad and Tobago was identified as non-compliant, though the OECD promised that “discussions are continuing” and that “progress is anticipated soon.”
Not long after, the first 10 outcomes from a “new and enhanced” peer review process for the EIOR standard, combining the prior Phase 1 and Phase 2 elements while adding in the ability of tax authorities to access beneficial ownership information, were released. Ireland, Mauritius, and Norway received ratings of Compliant. Australia, Bermuda, Canada, Cayman Islands, Germany, and Qatar were rated Largely Compliant. Jamaica was rated as Partially Compliant, which will require a supplementary report on follow-up measures.
Economic surveys
Economic surveys were released for New Zealand, Belgium, Slovak Republic, Iceland, Luxembourg, Austria, Argentina, and South Africa. For New Zealand, the OECD recommended reducing barriers to foreign investment and lowering the corporate tax rate to increase productivity. It also called for Belgium to reduce the statutory corporate rate, but then undermined that good advice by suggesting, under the guise of promoting “inclusive growth,” the introduction of a federal capital gains tax. Argentina should undertake revenue-neutral tax reform, according to the OECD, with a focus on lowering the threshold where taxpayers start paying personal income taxes, broadening the VAT base, and adding progressivity to social security contributions. The other nations were not given particularly noteworthy tax and fiscal advice.
In addition, in the fourth annual edition of Revenue Statistics in Asian Countries, the OECD lamented that “some countries have experienced a decline in tax revenues in recent years,” and suggested that “further efforts are needed to increase tax revenues.”
“Bridging Divides” with big government
Continuing its full-throated embrace of the ideology of big government, the OECD made “Bridging Divides” its central theme of the 2017 OECD Forum and ministerial meeting in June. Further fleshing out the organization’s focus on what it terms “inclusive growth,” the event demonstrated just how far the OECD has drifted from its initial focus on facilitating trade and economic cooperation.
In the lead-up to the meeting, OECD Secretary-General Angel Gurría wrote, “We’re beyond quick fixes to address the discontent of citizens. … The only way forward is not to patch up globalisation, but to shake it up.” What he wants to “shake up” is not the growth of the parasitic class in the form of ever bigger governments – which is the actual source of most economic problems facing the world – but the system of free markets and limited governments that emerged over previous centuries and lifted billions out of poverty in a surge a growth never before witnessed in human history.
His end game is made clear when he speaks of “rising inequalities of income” and “limited progressivity of our tax systems” as part of the “core concerns” in need of addressing, as the obvious implied solutions are higher taxes and more government redistribution, both of which will reduce global economic growth. There are of course political and economic challenges which nations may wish to address, such as workers’ displacement from rapid technological advancement. However, options to mitigate such growing pains are much more modest than a “shake up” of globalization and the free enterprise system.
A pair of statements summed up the work of the ministerial meeting. A Statement of the Chair, held by Denmark, addressed “International Trade, Investment and Climate Change.” On the plus side, it affirmed “the importance of international investment and free flow of capital,” and “the need to … push for the removal of support by government and related entities that distort markets.” Less impressive was its cheerleading for the Paris agreement, which has estimated costs of at least 1 percent of global GDP for very little environmental gain.
The Ministerial Council Statement, titled “Making Globalisation Work: Better Lives For All,” was also a mixed bag. It began with nods to the indisputable facts that “we have seen hundreds of millions lifted out of poverty” thanks to globalization, and that “increased productivity and continued economic growth provide the best opportunity to raise prosperity and well-being for our citizens.” But then it delves into the OECD’s misguided obsession with inequality, flogging its work on “Inclusive Growth,” conflating tax avoidance with evasion once again, and praising BEPS and the automatic exchange of information standard.
Inclusive growth is the new rallying cry
The meeting also saw the release of Update Report 2017 – Inclusive Growth, featuring several troubling observations and recommendations. It calls redistribution “vital for reducing market income inequality.” In a swipe at tax competition, it laments the mobility of capital and the inability of politicians to impose onerous tax burdens without consequence.
Particularly bad news for the global economy is the section on raising taxes on capital with an aim to “increase the overall progressivity of the tax system,” as well as calls for “strengthening international cooperation on the taxation of mobile tax bases” – a euphemism for the OECD’s efforts at forming a global tax cartel.
A Policy Brief titled Time to Act: Making Inclusive Growth Happen further outlines how inclusive growth will be used to advance a big government agenda. It calls “to re-write the rules of the economic system to make them work for everyone,” with specific recommendations to “enhance the progressivity of residential property taxation” and “strengthen inheritance and gift taxes.” It also self-servingly calls to “bolster global governance of tax policy” and thus further undermine fiscal sovereignty.
Unfortunately, things are likely to get worse going forward. The Ministerial Council Statement requests the OECD work on the development of a “Framework for Policy Action on Inclusive Growth” for the 2018 Ministerial Council Meeting, which means the OECD will continue pushing forward with its new, politicized agenda.
