Briefing – OECD announcement about the new “Inclusive Framework”

Added 27 Feb 2016
On February 26-27, the G20 will be asked to approve a proposal from the OECD to establish a so-called “Inclusive Framework”. According to the OECD, this will ensure that developing countries can now participate on an “equal footing” in the work to address tax avoidance by multinational corporations.

This announcement comes less than one year after the OECD countries blocked a proposal from developing countries, which would have established a global tax body under the United Nations, where all countries are members and would be able to participate on an equal footing. It also comes less than six months after the OECD and G20 governments adopted almost 2000 pages of decisions on how to respond to corporate tax avoidance through the BEPS package, which is a framework with serious shortcomings.

Comments from Eurodad

Tove Maria Ryding, Tax Justice Coordinator at the European Network on Debt and Development (Eurodad), said:

On the so-called inclusive framework:
“This so-called inclusive framework is in fact a very limited and tightly controlled framework, where the agenda is set and almost 2000 pages of decisions have already been adopted by the OECD and G20 governments, while more than 100 developing countries were excluded from the negotiations. If developing countries decide to join this new OECD forum, they will have to agree to follow all the decisions that have been made in their absence, and stick to the OECD’s agenda. This is anything but democratic."

On the BEPS agenda:
“One very serious problem with the OECD’s agenda is that, to a large extent, it allows multinational corporations to continue business as usual. The OECD governments have refused to address some of the most fundamental problems in the global tax system, including the arm’s length principle, which has proven unfit as a tool to tax multinational corporations. The OECD governments also allowed the continued used of harmful tax practices such as patent boxes and ‘sweetheart deals’ between governments and companies. Until we get a more ambitious agenda, we will not get to the point where multinational corporations start paying their fair share of taxes”.

On the need for a truly inclusive global tax body:
“The good news is that the OECD governments have in principle admitted that the global tax system is broken, and that developing countries have the right to a seat at the table governments negotiate how to fix it. But they still don’t walk the talk.

“We still need a global tax process where developing countries are not always forced to follow the agenda of the OECD governments, and where more ambitious proposals for reforming the global tax system can be put on the table. The only place that can offer this is the United Nations.”

Further analysis

This new inclusive framework does not put governments on an equal footing since it doesn’t provide equal influence to all.
Firstly, the agenda, as well as the terms and conditions for participation, have already been determined by the OECD. This provides some very problematic limitations on what influence the developing country governments can have. While they can participate in the meetings of the framework on an “equal footing”, they do not have equal powers when it comes to setting the agenda and agreeing the modalities for the work of the group.
Secondly, the new Inclusive Framework is still under the OECD, and therefore the OECD members will, at the end of the day, have the power to decide whether the forum should continue to exist and how the forum should work.
Thirdly, the OECD secretariat are, ultimately, accountable to the OECD’s Secretary General, and are bound to defend the interests of the OECD. Its aims, as specified in the OECD’s Convention, are to promote the interests of its members, including to “achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy..”
At best, the new Inclusive Framework provides a restricted influence of developing countries on a predetermined and very limited agenda.

Cost of participation
In addition to agreeing to the agenda and the decisions that have already been made, developing countries have to pay a high cost for entering the new inclusive framework. They have to pay a substantial financial contribution to the OECD, despite the fact that they are not - and will not - become members. According to the OECD, the poorest countries will have to pay € 20.000 per year – others will have to pay more. Additionally, the developing countries will have to finance their own participation in OECD meetings. If the process had been hosted by the UN, this would not have been the case.

This is not the first time the G20/OECD make the decisions first, and then invites developing country governments afterwards
A similar process played out around the negotiations about information exchange, where the ‘global standard’ was adopted by the G20 and the OECD in an exclusive forum. After the adoption, the OECD established the so-called ‘Global Forum’ and invited all countries to join and implement the standard and fill in the gaps. This kind of process is highly undemocratic, and it is unfortunate that it seems to have become the standard approach of the OECD and G20.

OECD governments contradicting their own arguments
Less than a year ago – during the Addis Ababa negotiations on financing for development – the OECD countries rejected a proposal from the developing countries to establish an intergovernmental tax body under the UN. The key arguments brought forward by the OECD countries where that:
- “There is no need for an intergovernmental tax body where all countries have a seat at the table. The setup we have today covers all the needs”.
- “We cannot accept the establishment of international bodies because it will lead to increasing expenses and a proliferation of forums”.
- “It is inappropriate to discuss tax issues in an intergovernmental forum. Global tax matters are technical and should be left for experts – not governments”.
However, less than a year later, the OECD governments have now decided to establish a new Inclusive Framework under the OECD. This forum is intergovernmental and associated with substantial costs for developing countries who would like to join (see above under ‘Cost of participation’).