For a couple of decades now, debates over the which international organisation should be in charge of organising global tax policy-making have ebbed and flowed, every once in a while heating up and surfacing in global political discussions, then fading back into isolated debates amongst selected tax stakeholders.
The classic dichotomy is one where the OECD is juxtaposed with the UN. The former is the “rich country’s club”, the informal “global tax organisation” for more than 60 years, the controller of the development of the global tax system. The latter is the “true global”, the “true inclusive” body, more favourable to developing country interests, yet severely underfunded and deprioritised because of resistance by major powers.
A history of discontent
The history of this dichotomoy traces all the way back to the 1950s when, for a brief moment in time, the United Nations did in fact take charge of coordinating international tax policy following World War II and the collapse of the League of Nations, which had birthed the first international tax rules in the 1930s. Martin Hearson’s exploration of the UN’s initial international tax work, and its subsequent downfall, is well worth reading. In short, Hearson notes, the UN’s Fiscal Commission failed due to a “failure to gather institutional momentum, in part due to the lack of effective secretariat support, and lukewarm support from across the board”. In its stead emerged the OEEC’s (later the OECD) Fiscal Commitee, which was able to gather that institutional momentum, strong leadership and coherence.
This, as Douglas Adams said, has made a lot of people very angry and has been widely regarded as a bad move.
While it has never appeared particularly likely, politically speaking, that the UN would take over from the OECD, there have been strong voices calling for the change, and becoming increasingly vocal. In recent history, UN Secretary-General Kofi Annan organised a push for a global tax organisation under the UN auspices in 2003, an idea that has been brought up over and over again at the UN. The idea was prominently reinvigorated at the 2015 Addis Ababa summit, and most recently as the G77 group of developing countries tried (and failed) once again to boost the standing and resources of the UN’s committee of tax experts.
These political attempts have been accompanied by research exploring the potential of and barriers for shifting global tax policy-making away from the OECD. From early work by Vito Tanzi, former tax chief at the IMF, to Dietsch, Rixen, Avi-Yonah and others, calls for a truly global tax organisation – far from the characteristics of the historically technically-driven, closed-off, opaque OECD – are widespread.
Political attempts have also been underpinned and supported by activist mobilisation. As early as 2005, the Tax Justice Network in its “Tax Us If You Can” report, had placed upgrading the UN tax committee among its key policy asks, alongside – read this carefully now – country-by-country reporting (which was materialised), public beneficial ownership registries (which has materialised), general anti-avoidance rules (which has materialised), automatic exchange of information (which has materialised), tax assistance for developing countries (which has materialised), and unitary taxation of corporate profits (which has materialised somewhat). (There were also asks for citizenship-based taxation and general progressiveness of taxes, which have been less succesful.) And the organisation, alongside every other civil society organisation active on the global tax agenda, has continued to be dedicated to increasing the power of the UN in global tax matters.
Yet it is clear that the UN still plays a distant second fiddle to the OECD when it comes to defining the content and direction of global tax policies. And that is perhaps for a very simple reason. This month, the South Centre published a policy brief by Abdul Chowdhary and Sol Picciotto, which tries to chart a path for “bringing the existing plethora of institutions under unified, universal and democratic control through a UN Framework Convention on Tax Cooperation”. While considering technical and institutional approaches to support such a move towards the UN, the authors ultimately concede that the key challenge is political, in that OECD countries are unlikely to give up decision-making power.
This is, incidentally, the typical charge against those pushing for the UN’s global tax power to increase: that it is utopian and unlikely due to the geopolitical balance of power. Moreover, it is hard to escape the fact that in many people’s eyes, the OECD has been remarkably successful at maintaining and developing a well-supported global tax system. In a time where multilateralism is in conflict, in global tax affairs, “states are responding to challenges since the financial crisis by coming together differently, but also – for the time being at least – more effectively“.
These considerations beg at least two questions that bear investigation. First of all, would the UN be a “better” forum than the OECD? Second, is it likely and feasible to move global tax policy-making to the UN?
Is the UN “better” than the OECD?
First, for judging whether the UN would be “better”, we need to ask what “better” means. Why is it that proponent want to more global tax policy-making to the UN, away from the OECD? The OECD’s critics are many, and critisms abound. Yet if we take a crude approach, they can be boiled down to: the OECD is not inclusive of non-OECD interests. This encompasses a lack of concern for developing country interests, and other common criticism such as OECD policy outputs being heavily influenced by a few major powers, businesses, and technical tax experts. Broadly speaking, the UN is seen as the antidote to this. “Unlike the OECD, which is a rich countries’ think tank, the UN Tax Committee is fully open to all countries, and therefore can fairly claim a legitimate mandate to represent the interests of poorer countries“, say TJN.
To assess whether the UN tax committee would, in fact, be a better place for non-OECD interests, we can consider both how the UN tax committee works now, and how the UN tax committee would work in the future if it superseded the OECD as the premier global tax policy-making forum. Those two are of course very different from each other. Today, the UN tax committee resembles the OECD way of working in several respects:
While the OECD is often contrasted with the UN Tax Committee as the latter comprises individuals and the former states, the Steering Group and the UN Tax Committee are more similar than this implies. Both are groups of around 25, mixed roughly 50/50 between OECD and non-OECD origins. Experts participate in a personal capacity and secretariats play a central role in determining group composition. Most practical work is organised through focused working groups. There is only a small overlap between the Steering Group and UN Tax Committee (two people at the time of writing), but many UN Tax Committee members are active members of OECD working partiesAt the Table, Off the Menu? Assessing the Participation of Lower-Income Countries in Global Tax Negotiations
Many of the structural barriers to participation are the same, as well: Travel costs, expert capacity, language, geopolitics, and so on. However, there are important differences too, most notably in the formal mandates, resources, as well as mode of decision-making. The latter is particularly crucial: whereas the OECD works by a negotiated “consensus” mode, the UN tax committee adopts a majority vote.
These institutional differences are a key reason why the UN tax committee has undoubtedly fostered the most significant policy win for lower-income countries in global taxation in recent years, namely the inclusion of an article on technical services fees in the UN Model Tax Convention (“12A”). As colleagues and I have shown, UN-specific norms (e.g. anticipation of developing country concerns) and its decision-making structure were central to make this happen. It wouldn’t have happened at the OECD.
In that sense, it is likely that the UN tax committee, as it functions today, is “better” at developing policy outputs that are inclusive of non-OECD interests, especially developing country interests. (It is worth noting though that the diffusion and adoption of UN tax policy outputs are more limited than those of the OECD, and thus policy wins at the UN travel less far than policy wins at the OECD. It is also worth noting that, although it is not always, international tax policy is often a zero-sum game focused on the allocation of taxing rights, and as such any organisation that is better at taking care of non-OECD interests will probably also be somewhat worse at accommodating OECD interests.)
It is not likely, however, that the UN tax comittee would continue to function as it does today, if it was upgraded to a true intergovernmental body and superseded the OECD. And so perhaps the right question is whether the UN would be “better” than the OECD at representing developing country interests in the hypothetical scenario where it gains power.
This is much more speculative, but we can say with a good degree of certainty that the UN tax work would become subject to many of the same contextual factors that mark the OECD’s current tax work, including geopolitical hierarchies and politicization. Major powers would still be major powers, and thus likely to dominate policy-making in the UN, even in the face of the UN’s broader membership, which would ensure a greater number of countries around the official table than at the OECD today. And broad political interest would mean a greater level of stakeholder engagement, and thus political fighting, than in the UN committee’s current more depoliticised state. This would mean facing the difficult dilemma of inclusiveness vs. coherence. In that respect, one of the things the current UN tax committee has “going for it” is that, simply, it is the UN tax committee (and not the OECD).
How much those contextual factors, which may well limit the influence of developing countries, would then interact with (and likely weigh against) the UN’s distinct mandate, norms and decision-making, which could enable developing country influence, is anybody’s guess.
Is it feasible to trade the OECD for the UN?
In practice, the more relevant question may not be whether the UN is better, but whether it is actually possible, or even likely, that we could move global tax policy-making to the UN? For all the debate, this point is rarely considered.
As noted, the typical dismissal of any suggestion of moving global tax policy-making to the UN is that it is utopian: global power dynamics are the way they are, there is institutional inertia and path dependency etc., which mean the powerful actors that support the OECD’s dominance today will continue to do so tomorrow.
Both positions, however, are extreme. The UN will not take over from the OECD in an instant. But equally, although majors powers dominate global governance, things are not totally static. Global power shifts are empowering non-OECD countries, and so global institutions are always changing – the tax policy-making landscape too. The way global governance changes today is rarely with big booms; it is more subtle, usually with ever-more multiplex “regime complexes” characterised by overlaps in mandates and work, competition and cooperation. The global tax policy landscape is a fine example of that, not just marked by UN-OECD competition but also increasingly the EU, as well as the World Bank, the IMF and others.
Consider that, in some respects, the UN has already increased its power in global tax matters over the last years. The UN committee of tax experts has, despite limited resources and political support, managed to produce several significant policy outputs that go directly against OECD-consensus policies (the most signifcant being Article 12A of the UN model tax convention). And the committee continue to push on such agendas, including with ongoing work on an Article 12B, which, again, goes directly against OECD-consensus policies. The UN has also managed to shape discussions through its FACTI Panel, which has adopted what I have called a “European Parliament” type of approach, making political noise and using innovative activist approaches to draw attention to specific policy issues, as a way to overcome the lack of its formal decision-making authority.
This UN influence has come not necessarily at the expense of the OECD, but in addition to it. And this is an important way an empowered UN can realistically shape global tax policy-making without taking full control of it. We know that overlapping institutional work, such as that done by the UN, can put normative pressure on dominant organisations, such as the OECD, to pursue more progressive (and inclusive) policy-making.
While we cannot ascribe recent advances in the inclusiveness of global policy-making at the OECD entirely to the UN’s, the pressures placed on the OECD by non-OECD powers, in particular the G-20 and developing countries more broadly, have been key to the OECD creating its “Inclusive Framework”. The IF now encompasses more than 140 countries, and while effective participation remains an issue, a formal seat at the table is a radical change from just a few years ago when 30-something OECD countries effectively decided global tax policy on their own.
Ironically, the creation of the Inclusive Framework will probably make it less like the UN takes over a more central role in formal global tax policy-making processes, given that it will be seen as appeasing calls for more inclusiveness.
At the same time, it illustrates the succesful influence of work by the UN and others that have pushed for institutional reforms that better accommodate developing country interests. In that respect, the UN doesn’t need to take over from the OECD entirely in order to shape global tax policy-making. That path to influence is much more likely, in the short term at least, than a wholesale shift away from the OECD.
Things take time, direction of travel matters
To wrap up, the UN tax committe today has proven more capable than the OECD of accommodating developing country preferences – the stated aim of many proponent of empowering the UN tax committee. Yet, that capability would likely be somewhat limited if the UN took on the role envisioned by its supporters, taking over for the OECD, and coming to face similar structural constraints from geopolitics, politicization, and the (limited) availability of financial and expert resources.
But the UN can still be – and it has shown itself to be – effective in influencing global tax policy-making to better accommodate developing country preferences, despite its standing and resources continuing to be limited. Innovative policy outcomes like Article 12A, the FACTI Panel, and the UN’s – and the broader non-OECD community’s – role in enabling the creation of the Inclusive Framework, all evidence this point.
For proponents of a global tax body hosted by the UN, this is worth celebrating, and supporting. And it is worth recognising that things are moving further in this direction: Just 10 years ago, the UN played a smaller role than it does today.
This directional of travel matters. Any shift that empowers the UN in global tax policy is likely to be a slow, incremental process. Institutional change is part of a paradigm shift, but paradigm shifts take time. While it’s underway, we can take stock and assess how best to bring about desired preferences in both the current and future institutional environment. As we write in “At the Table, Off The Menu?“:
Achieving truly inclusive global tax governance institutions will take decades. In the meantime, a pragmatic approach entails asking which of lower-income countries’ priorities from international cooperation can be achieved through the [OECD] IF, and which require a different type of institution.