The Clash Of Global Tax Visions

Robert Goulder of Tax Notes and Sharon Katz-Pearlman of Greenberg Traurig discuss the ongoing friction between the United Nations and the OECD over the U.N.’s push to play a larger role in international tax policy.

This transcript has been edited for length and clarity.

Robert Goulder: Hello everyone, I’m Bob Goulder with Tax Notes. Welcome to the latest edition of In the Pages, where we take a closer look at content from our print and online publications.

Our featured article for the month couldn’t be more timely. It focuses on the major friction point in international tax policy, that is, between the OECD and the United Nations. The piece is titled “Still Not Boring: The U.N. and the OECD — What Lies Ahead?” I should add that it’s a sequel of sorts to an excellent piece Tax Notes published earlier in the year; that one was titled “Definitely Not Boring: The U.N. Tax Committee and OECD Collide.” That collision metaphor I think is highly appropriate here. And no, none of this material is boring. Quite the opposite in fact, as recent events have borne out.

Now, both of these articles were written by today’s guest author Sharon Katz-Pearlman, who is a shareholder with a law firm of Greenberg Traurig in New York. Sharon, thank you so much for joining us.

Sharon Katz-Pearlman: Thank you so much for inviting me. Happy to be here.

Robert Goulder: Let’s just get right into it. My first question, all of our readers and everybody watching this video, they will appreciate that the OECD has been very busy the last couple of years between pillar 1 and pillar 2. And that whole process in theory is coming to fruition soon; we’re going to see the MLC (multilateral convention) shortly and whatnot. Your article, though, reminds us that the United Nations has not exactly been sitting on the sidelines, being idle — not at all. It was just about a year ago or so, we had a resolution that was introduced and eventually passed that puts the U.N. right in the front and center of the international tax sphere. Can you tell us a little bit about that resolution and why it was significant?

Sharon Katz-Pearlman: Sure. So the resolution which was passed at the end of last year was put forth by Nigeria, on behalf of all of the African nations, the group of African nations at the U.N., and I think it’s 54 countries, coming forward, basically to ask the U.N. to become directly involved in developing an inclusive process. And I just want to get the words exactly correct, “To take the steps necessary to ensure inclusive international tax cooperation and coordination.” The resolution itself, in fact, is called the Resolution For Promoting the Inclusive and Effective — inclusive and effective, I’m just stressing that — International Tax Cooperation at the U.N., asking the General Assembly to begin intergovernmental discussions at the U.N. in New York, and really shining a light on an issue that was bubbling around the sense that maybe the OECD’s work was not inclusive.

When I read the resolution, I think it was the use of the word “inclusive” that really jumped out at me, because inclusivity is the bedrock of the work of the OECD, right? They have the inclusive framework. So I think for the resolution to use that word was a pretty bold statement. And I think that is why it is so important. I mean, to me it was really a direct challenge or direct hit on the work of the OECD, which has been quite extraordinary.

Robert Goulder: Well, going back a few months, the U.N. Economic and Social Council had what seemed like a public consultation on the resolution. This was I think in March or April, a couple of months after it had been passed. So people had time to digest it. And they heard input from a variety of stakeholders, and your article talks about noticing a trend in the responses that they got at this consultation where all the developing countries seemed to be aligned saying the same sort of thing that wasn’t quite what we heard from developed nations. Can you elaborate on that a little bit?

Sharon Katz-Pearlman: There were 80 comments that were submitted. When the U.N. went out for comment on the resolution there were 80 submissions, covering the full range — everyone you would expect to have an opinion. Member states at the U.N., OECD participants, the OECD itself, business organizations, tax policy groups. It was a really broad range of input that came in. The session started, I think it started at 8:30 in the morning. It was a very long day. It went until six at night, and everybody that spoke made their points.

As I was listening, it became clear that there were two tranches, as you said. There was one group, and mostly it was coming in from the developing countries, that felt that the OECD work was not as inclusive, effectively their voice had not been heard. And they said really that “the reason our voice had not been heard is because we have not had a voice in developing your agenda. So how could these policies address our issues if we were not present to develop the agenda?” And this concept of agenda-setting is very prominent at the U.N., as they decide what path to go down.

That was one group. Then of course there was the group that was acknowledging that “yes, there are certain states that are not involved in the U.N. work, but to change now, or to shift gears now, could have dire consequences to the work that had already been completed.” A lot of those comments came from the very developed countries. I guess maybe I would just mention that there has always been this underlying drumbeat of tension about the OECD and 38 countries, and they’re the big important ones. And I think a little of that was rumbling underneath the surface.

I think the view that was voiced by the OECD policy faction, and I use that word just to distinguish, not for any other reason, it’s a very understandable point of view. The work’s been ongoing for years. So this is a huge thing now to say, “Wait a second, we think we should stop.” I will say that the finance minister of Colombia spoke and came out very strongly in favor of the U.N. resolution, and Colombia is a member of the OECD. So there were some lines being crossed, but it was very clear that the resolution had set up two groups and that the path forward was going to be, I think, difficult.

Robert Goulder: Well, since that time, we’ve heard from the leaders of both of these organizations. In August, we had a report from U.N. Secretary-General António Guterres talking about tax policy, which was just amazing to me that you have someone as prominent as the U.N. secretary-general putting together a whole report about international taxation. That alone tells you something about the weight that this carries. And then a day or two later, we had a response of sorts from Manal Corwin, director of the OECD’s Centre for Tax Policy and Administration. And they each made their different points.

Sharon Katz-Pearlman: Yes. So the short answer is yes, they both have a point. I think that the U.N. secretary-general came out as the voice of the United Nations and as the voice of the developing countries. That is his role. I mean, that is the job. The U.N. is focused on assisting developing countries. And it should be. So I think his comments, which were very bold, and the report that came out made a very, I think, bold statement. The report began with a reference to the U.N. charter many, many years back, which talks about international tax cooperation and the need for the U.N. to be mindful of making sure that the cooperation is inclusive and global and that it especially takes into account the needs of particular countries that have special circumstances.

Their findings in the report were very, I use the word “bold” a lot, but they were bold, strong findings that the current policy, or as they call it, “the existing international and multilateral arrangements and the trend,” does not actually promote the inclusivity that is needed. I think that the language that was used in the conclusion really, again, put a serious stake in the ground that the U.N. is moving into this space, “These are our concerns. And that I as the secretary-general am putting this stake here.”

On Manal’s comments, I think her comments were completely correct. She said, “We have done things in an inclusive nature. The work of the OECD has benefited developing countries.” That is all true. There’s an amazing initiative out of the U.N. and the OECD called Tax Inspectors Without Borders. That’s a joint effort, and that is specifically to benefit developing nations. So I do completely agree with Manal’s comment that, “Look, the OECD does work towards helping developing countries as well.” And I think that nobody is going to debate the fact that there are far more than 38 countries that are part of the inclusive framework, right? There are 140 or 141, whatever the correct number is. There are a lot of countries that are a part of it, but when you compare the number of countries in the inclusive framework and the number of countries in the General Assembly, there is a delta there, and it’s not insignificant.

So I think that the issue is that while the work of the OECD has certainly gone beyond just focusing on developed nations, from the U.N.’s perspective, if a third of the member states feel that they have not really been involved, then that’s an issue for them.

Robert Goulder: Let’s get back to that Guterres report. He puts out those three options. He lays out all of this and he says, “Here’s what we can do.” Rather than, “We’re doing this,” he says, “Well, we should do one of these three different things.” It’s a little bit technical, so I’ll read it here to make sure I get the wording correct:

“Option 1, a binding multilateral convention,” which sounds a lot like the OECD multilateral convention. “Option 2 is a binding framework convention,” which seems a little bit broader if it’s just a framework. And then the third option is, “A nonbinding multilateral agenda.” I’m always nervous about things that aren’t binding, because if you’re not bound to something, then why is anyone going to do it?

Anyways, when you read those, what was your thought process as you worked through them? Did one seem more likely than the other? How do you think all that’s going?

Sharon Katz-Pearlman: Yeah, so I will tell you the truth, I read it, and then I read it twice more. I think my initial reaction was and continues to be that the first one is very difficult. I mean, that is a multilateral treaty basically. And it looks a lot like, I think, the MLI (multilateral instrument) and the work of the OECD. It requires political input, and I think it’s very, very hard. The OECD has seen that, right, as countries are certainly coming on board, but one provision here, one provision there, it’s very hard when politics, if you will, comes into it.

I think the second option, this framework convention, is one step down from that, binding. So that’s good. The way they describe it is, as you said, sort of a broad overview of the way things maybe should move forward. They talk about providing core tenets of international tax cooperation, including the objectives and the key principles, but again, requiring commitment from the countries. So they would have to agree to all of this, and countries could opt in or opt out. So maybe the thought is if it’s offered to all member states, at least they have a voice in something coming out of the U.N., which I think is the driver for this, right? These would all be U.N.-driven processes, but I think this one is hard.

I think the third option, which I agree with you, you get nervous if it’s not binding, because then what is it? Is it just a framework, an overall framework for international tax cooperation, which is certainly the least formal? There is no need to ratify anything, or politicians don’t have to get involved. There’s no legislation. It’s certainly the easiest to implement. And they say that if that’s how the process were to begin, that should there be a specific focus area or provision that comes out of this that the nations decide should rise to the level of binding agreement, that they can then turn that into a binding agreement. So it talks in a couple of places about how you can morph from option 3 back to maybe option 2, or option 1, and that they’re not mutually exclusive.

I read some comments from someone who was involved in the climate change work that the U.N. is doing, and they have a framework convention. And her comments were that it works very well and that it’s worked for climate change, so maybe it could work here. I read another comment that suggested that perhaps the easiest way is for the OECD, as it develops new policies and new proposals, to bring them to the General Assembly and say, “Here is what we’re proposing. If the General Assembly passes it, now it has the weight of the U.N. behind it, and so maybe we’re in a good place there.”

I don’t know — so I don’t think they will go down the path of a binding commitment. I think they’re going to end up somewhere between two and three. I just think if they go down the path of a binding agreement, this is now, we’re looking at another 10 years, and I think they want action now, and I think they’re looking for something that can help them move this process forward more quickly. So that’s what we’re all waiting to hear — which direction do they head? Which option do they pick?

Robert Goulder: Yes, exactly. As you say in your conclusion, we don’t have a crystal ball, but we sure would like to know what the endgame is here. How is this all going to unfold? I guess my final question is, in some ways you may have already answered it, but is there enough space in the international tax arena for a dual-track approach, where you can have OECD countries going by one set of standards and guidelines, and then the rest of the world doing their own thing following the U.N.? Does a dual-track approach even make sense given how global trade works?

Sharon Katz-Pearlman: We do not have room for two separate procedures. I think there is going to have to be some kind of agreement between the two bodies. I don’t think that the OECD can just say, “Sorry, we’re not engaging here.” I don’t. I think there is going to have to be a serious dialogue. I don’t see the U.N. backing off here. I don’t think it can at this point. With the unanimous resolution and a lot of discussion, they are here in this space, and I think that they plan to remain there.

Today’s world is so interconnected. Corporations operate in 150 jurisdictions. The world is huge, but it gets smaller every day, just because of technology and everything that’s happening. So we do need some system that’s viable in this new — not so new anymore, right — in our global environment. And going back to bilateral tax treaties, it’s just not going to work. It hasn’t worked, right? That’s why we’re here. That’s why the OECD said, “Wait a second. We need to have something that applies more broadly.” It is unfortunate. My crystal ball still does not work, which is too bad. I think this is just going to be a drama that unfolds. There’s going to have to be some meeting of the minds somehow, or we’re just going to have a mess, and nobody wants that.

Robert Goulder: No, nobody wants a mess. Not taxpayers, not governments. A mess benefits nobody. Very well said. Thank you for taking the time. Hopefully we’ll get to do this again, maybe when some of these mysteries are solved. So there you have it. The name of the article coming out in October in Tax Notes is, “Still Not Boring: The U.N. and the OECD — What Lies Ahead?” And the author is Sharon Katz-Pearlman. Sharon, thank you again for taking the time.

Sharon Katz-Pearlman: Thank you so much for having me.