lexisnexisip.com

Q&A: Grace Perez-Navarro, Director of the OECD’s Centre for Tax Policy and Administration

Tom WickerTuesday 24 January 2023

Grace Perez-Navarro is Director of the Organisation for Economic Co-operation and Development’s (OECD) Centre for Tax Policy and Administration. Here, she speaks to Global Insight about the key issues facing the OECD, from the implementation of its ‘Two Pillars’ tax reforms to ensuring that the interests of developing countries are protected.

Tom Wicker (TW): How has the OECD evolved its approach to social as well as fiscal issues in the structuring of its various committees, how these interact with the countries within the OECD and their responsibilities?

Grace Perez-Navarro (GPN): Since the OECD was formally established over sixty years ago, our mission has been to deliver greater wellbeing worldwide by advising governments on policies to support resilient, inclusive and sustainable growth, not just on fiscal issues but spanning the entire public policy horizon. Its motto is ‘Better Policies for Better Lives’ and we try to achieve this by working together with experts from government ministries and agencies. The OECD carries out its work through committees, made up of government experts, which cover almost every area of policymaking. For example, we have committees on agriculture, education policy, employment and labour, environment policy, health and trade. Committees provide a forum for delegates to share policy experiences, set standards, review policy implementation and impacts and determine the work programme of the Secretariat. At the Secretariat level, we collate data, provide analysis and formulate recommendations to inform committees.

Every year, around 40,000 delegates from OECD members and beyond take part in committee meetings. For example, in the tax area, we regularly work with countries and jurisdictions beyond the 38 members of the OECD. Notably, in 2009 we established the Global Forum on Transparency and Exchange of Information for Tax Purposes, which today brings together 165 countries and jurisdictions, working together on an equal footing, to implement the international standards of transparency in tax matters. In 2016, the Inclusive Framework on Base Erosion and Profit Shifting was created and now has over 140 member countries and jurisdictions working together on an equal footing to tackle tax avoidance. The Forum on Tax Administration consists of the tax commissioners from more than 50 of the most advanced tax administrations in the world [and aims] to share best practices and develop common approaches to tax administration challenges.

The Committee on Fiscal Affairs (CFA), chaired by Italy’s Fabrizia Lapecorella, is the main tax body of the OECD. The CFA’s mandate covers the promotion and development of effective and sound tax policies, international tax standards and guidance that will allow governments to provide better services to their citizens while maximising economic growth and achieving environmental and social objectives. Because tax policy serves as a policy lever in other domains, the CFA covers a very broad range of issues including environment and climate change, housing, employment, health, gender and inclusive growth.

Becoming a member of the OECD demonstrates a commitment to global standards and values that can help garner foreign investment

TW: Accession roadmaps were recently decided for Brazil, Bulgaria, Croatia, Peru and Romania. Can you expand on some of the key objectives that countries must meet, to be considered for membership of the OECD?

GPN: To become a member of the OECD, each country must commit to the OECD’s shared values, vision and priorities, as reaffirmed in the OECD’s 60th Anniversary Vision Statement. The like-mindedness of the OECD’s membership is key to ensuring that the Organisation preserves its founding goals, including the preservation of individual liberty, the values of democracy, the rule of law and the protection of human rights.

Brazil, Bulgaria, Croatia, Peru and Romania have each demonstrated their readiness to become members and have committed to our core values, which is what led the OECD Council – the governing body of the Organisation – to initiate the accession process. It is our hope that that the process will contribute to positive social and economic transformation in the five candidate countries. Conversations with Argentina, the sixth country for which the Council decided to open accession discussions, are underway.

As regards next steps, each of the accession countries will need to demonstrate adherence to certain OECD standards, policies and practices, the so-called ‘Accession Core Principles’, which are set out in the annex to the roadmaps for each country. For example, for the Committee on Fiscal Affairs, they comprise the following principles:

  • eliminating international double taxation on income and capital without creating opportunities for non-taxation or reduced taxation through complying with the key substantive conditions underlying the OECD Model Tax Convention;
  • committing to provide appropriate data for the CFA’s periodic tax statistics and tax policy publications, and to contribute actively to the analysis of tax policy in terms of its effects on inclusive and sustainable economic growth and well-being;
  • eliminating double taxation through ensuring the primacy of the arm’s length principle, as set out in the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, for the determination of transfer pricing between associated enterprises;
  • addressing base erosion and profit shifting (BEPS) in accordance with the BEPS package and the ongoing work of the Inclusive Framework on BEPS, including the two-pillar solution to address the tax challenges arising from the digitalisation of the economy;
  • engaging in administrative assistance in tax matters, including through effective exchange of information as reflected in the international standards on exchange of information on request and on automatic exchange of financial account information in tax matters;
REUTERS/Sumaya Hisham

Grace Perez-Navarro, © Xavier Granet/Task Force on Financial Integrity & Economic Development.

  • reducing uncertainty and risks of double taxation and unintended non-taxation when applying value added tax [VAT]/goods and services tax [GST] in a cross-border context, through the design and operation of these taxes in accordance with the 2016 Council Recommendation setting out the OECD’s International VAT/GST Guidelines and the further guidance provided in related reports;
  • combating tax crimes and other crimes in accordance with the 2009 Council Recommendation, the 2010 Council Recommendation and the Principles in Fighting Tax Crime – The Ten Global Principles; and
  • committing to provide appropriate data for the International Survey on Revenue Administration for purposes of the Tax Administration Comparative Information Series.

TW: What role is played in a successful accession by evidence of social justice and equality alongside such mainstays as anti-corruption and tax transparency?

GPN: A candidate country can become an OECD Member once it has successfully demonstrated that it has met all of the relevant OECD standards, policies and practices, which go well beyond anti-corruption and tax. The OECD has around 460 substantive legal instruments, many of which are adhered to as part of the accession process. The process includes a rigorous and in-depth evaluation of the candidate country’s alignment with OECD standards, policies and practices by more than 20 technical committees focusing on various priorities including open trade and investment, progress on public governance, integrity, the effective protection of the environment and action on climate.

TW: What are the benefits of membership of the OECD? Some critics have argued that its obligations can hinder or restrict economic growth.

GPN: Joining the OECD means joining a coalition of like-minded countries striving to be a force for good in the world. Becoming a member of the OECD demonstrates a commitment to global standards and values that can help garner foreign investment, and the OECD’s prioritisation of evidence-based policy analyses and recommendations, standards and global policy networks has proven valuable to members, as we have helped advance important reforms and multilateral solutions to global challenges. We aim to ensure well-functioning global markets, a global level playing field and a rules-based trading system in good working order. We work with members on a one-on-one basis, through tailored country surveys, expertise and support, and on a cross-country basis, through data gathering and analysis. Members have decision-making power in our committees and determine our work programme.

Our work in tax has delivered real results for countries, both in terms of information exchange and transparency, but also in additional revenues for governments. [In 2021 alone] information on at least 111 million financial accounts worldwide was exchanged automatically between tax administrations around the world, covering total assets of nearly €11tn. Our work in international tax reform has demonstrated the power of multilateral efforts to address global challenges, as demonstrated by last October’s landmark agreement between 137 countries and jurisdictions to address multinational tax avoidance and introduce a minimum corporate tax rate for the first time.

TW: Tax reporting and transparency have been a central tenet for the OECD for the past couple of decades, with an increasing number of countries signing up to its recommendations. What has been the real-world impact of this?

GPN: Our work has delivered real results and fundamental changes to the international tax system that are only possible to achieve through multilateral cooperation. There are too many examples to name, so I will just share a few:

  • the implementation of the Two Pillar solution to the tax challenges of digitalisation will have significant implications on the global economy. For the first time, countries will apply a globally agreed minimum corporate effective tax rate of 15 per cent (Pillar Two). Pillar One would reallocate more than $125bn of profits from around 100 of the world’s largest and most profitable multinationals to countries worldwide, ensuring that these [companies] pay a fair share of tax wherever they operate and generate profits. The absence of an agreement would likely have led to a proliferation of uncoordinated and unilateral tax measures and an increase in damaging tax and trade disputes, which would have undermined tax certainty and investment and resulted in additional compliance and administration costs. The OECD has estimated that such disputes could reduce global GDP by more than one per cent;
  • our tax transparency standards have put an end to bank secrecy and are delivering much-needed revenues to governments. At least €112bn in additional revenues have been identified worldwide through voluntary disclosure programmes and offshore tax investigations launched against the backdrop of the increased transparency and exchange of information initiated by the OECD. Importantly, developing countries have identified nearly €30bn since our work on tax transparency began in 2009. In 2021, information on more than 111 million financial accounts was exchanged automatically, covering total assets of around €11tn. The number of exchange-of-information relationships between African tax administrations increased fourfold between 2015 and 2021, enabling three African countries alone to identify nearly €40m from the exchange of tax information in 2021; and
  • our work in other tax policy areas has yielded significant revenue streams for governments. The OECD VAT/GST Guidelines have helped South Africa, for example, collect over ZAR 15.3bn (nearly $1bn) of new revenues since its implementation in 2014.

TW: How does the OECD strive to ensure that the interests of poorer or emerging jurisdictions are protected? What does the OECD’s policy of ‘partnership’ with such states entail?

GPN: It is core to our international tax reform efforts that all members of the OECD/G20 Inclusive Framework on BEPS and the Global Forum on Transparency and Exchange of Information for Tax Purposes participate on an equal footing and advance together. The OECD/G20 Inclusive Framework on BEPS includes 70 developing countries and 90 members of the Global Forum are developing countries. Developing countries participate in the Steering Groups of each of these bodies; earlier this year, Ms Marlene Nembhard Parker, of Jamaica, was also elected as the co-chair of the OECD/G20 Inclusive Framework on BEPS.

[In October 2021] the OECD delivered a stocktake report, Developing countries and the OECD/G20 Inclusive Framework on BEPS, to G20 finance ministers and central bank governors, which [was] updated for the October 2022 G20 finance ministers’ meetings. Developing countries also had a significant influence on the terms of the October 2021 Two Pillar deal. The deal provides a redistribution of taxing rights to market jurisdictions based on where sales and users are located, which often in developing countries, and reduces the incentives for MNEs [multinational enterprises] to shift profits out of developing countries.

We also carry out a range of capacity building activities with developing countries, including bilateral support for the implementation of the BEPS project and the Two Pillar solution, and provide training and regional events. Our Tax Inspectors Without Borders Programme (TIWB), which we run jointly with the United Nations Development Programme, also helps developing countries build tax audit capacity. TIWB has delivered impressive results to date: a total of $1.7bn tax revenues has been collected and $3.9bn in tax has been assessed through TWIB programmes across Africa, Asia, and Eastern Europe, as well as Latin America and the Caribbean.

TW: Economic and social policies are invariably driven by domestic politics. How much enforcement power does the OECD have if countries reject – or break with – its recommendations and/or principles?

GPN: The OECD operates by consensus and its ‘soft law’ enforcement mechanism of peer pressure has proven effective. For example, all 165 countries and jurisdictions of the Global Forum have committed to the international tax transparency standards and have agreed to be peer reviewed on those standards. The annual follow up to those reviews shows that the vast majority of jurisdictions are actively working to address the recommendations contained in the peer reviews. Similarly, the over 140 members of the Inclusive Framework are implementing the minimum standards of the BEPS Project. They are also working together in the spirit of compromise to implement the Two Pillar solution, considering that it is better to have a globally agreed multilateral solution rather than a multitude of uncoordinated unilateral levies, thereby avoiding the risk of double taxation and serious trade sanctions arising from unilateral approaches.

TW: The ‘Inclusive Framework’ made headlines last year. How does the OECD successfully negotiate an agreement such as the global minimum corporate tax rate among member countries with (often competing) interests?

GPNThe Two Pillar Solution to the tax challenges arising from the digitalisation of the economy is truly a landmark agreement that will ensure that multinational enterprises pay their fair share of tax, wherever they operate. Let me just emphasise that it is the Inclusive Framework members that have negotiated the agreement. Our role as Secretariat is to facilitate consensus, bridge the gaps between different positions and help members to find a common ground. Countries were able to do so because they recognised that a globally agreed multilateral solution was in everyone’s best interests, rather than unregulated tax competition that could hinder global economic growth and increase trade tensions. In the end, the minimum tax will ensure that all types of economies – smaller, larger, developing, emerging or with a higher GDP [gross domestic product] – will benefit from extra tax revenues.

The minimum tax will ensure that all types of economies – smaller, larger, developing, emerging or with a higher GDP – will benefit from extra tax revenues

TW: The deadline for agreement to the ‘pillar’ requiring companies to pay more tax where they make their profits has been delayed and may not succeed, according to some reports, due to the impact that this is likely to have on the US technology/digital sector. Are you confident that this will still happen?

GPN: We have made great progress at a technical level since October [2021], and we are working as quickly as possible to finalise the work. I remain confident that we will finalise the package and that it will be implemented, because the alternative scenario is not appealing for anyone, including US tech companies.

TW: Sceptics about the Inclusive Framework say that it does not go far enough to tax the biggest global corporations, while also not sufficiently supporting emerging jurisdictions. How would you respond to this?

GPN: As mentioned above, the Two Pillar solution represents the consensus among 137 countries and jurisdictions. Consensus was reached through compromises on all sides. Developing countries actively participated in the negotiations of the deal. As a result, the agreement acknowledges their call for more predictable international rules and reduces the incentives for multinationals to shift profits out of developing countries. The agreement also protects the right of developing countries to tax certain base-eroding payments (that is, interest and royalties) when they are not taxed up to the minimum rate. At the time the agreement was reached [in October 2021], the African Tax Administration Forum published a statement acknowledging the role developing countries played in the negotiations.

As to your question on whether the agreement goes far enough, let’s not forget that we are talking about an effective rate, ie, the rate actually paid by multinational companies. Currently most multinationals pay a lot less, as a result of deductions, exemptions, loopholes or tax avoidance strategies.

TW: Does the OECD have further plans to address the issue of tax havens?

GPN: The implementation of the Two Pillar solution should signal the end of harmful tax competition and aggressive tax planning. Thanks to the work of the Global Forum Transparency and Exchange of Information for Tax Purposes and the BEPS Project, we have helped put an end to bank secrecy and shell company regimes. We have also recently released a report on the future of tax cooperation, as requested by the German G7 Presidency, which sets out how to further strengthen international tax cooperation in light of the Two Pillar solution. On a day-to-day basis our peer review work continues on the BEPS minimum standards, and we are constantly working to ensure that the tax transparency instruments available to tax administrations are sufficiently modern and cannot be undermined by technologies developed since the tax transparency standards were first agreed. For example, the Committee on Fiscal Affairs will shortly release new rules on reporting on crypto assets.

TW: The digital landscape has transformed boundaries of trade and profit. How does the OECD stay abreast of changes in this rapidly evolving sector?

GPN: It is part of our role and mission to monitor developments in trade and technology. We do this through the wide range of committees dealing with these issues and engaging with business, academics and civil society. That is the great benefit of our expert, committee-based approach to policy development. Ongoing work in the tax area to adapt to digital developments includes:

  • newly agreed reporting rules on crypto assets;
  • harnessing technology and digitalisation to create a more seamless and less burdensome tax administration. The OECD Forum on Tax Administration’s Tax Administration 3.0 Report describes the potential to significantly reduce tax gaps and administrative burdens through digitalisation and greater integration of taxpayer and tax administration systems; and
  • development of regional VAT Digital Toolkits for Latin America and the Caribbean, Asia Pacific and Africa to facilitate implementation of the OECD VAT/GST Guidelines as they relate to e-commerce.

TW: The OECD has a wide-ranging remit in terms of what it surveys and reports on. Aside from tax transparency, what are some of the key challenges facing the world today, from fiscal and anti-corruption as well as societal perspective?

GPN: Addressing the tax challenges arising from the digitalisation of the economy and implementing the landmark agreement of October 2021 remains our main priority at the moment. However, the Centre for Tax Policy and Administration is also focused on addressing a wide range of economic, social and societal issues. Three examples spring to mind:

  • Gender: [In February 2022] we released the first ever cross-country report on how tax policy can contribute to gender equality and governments’ efforts to reduce inequalities. The report draws upon input from 43 countries in response to a detailed survey on the issue of gender and tax policy design, and explores the extent to which countries consider and address gender equality in tax policy development and tax administration. While some tax systems will not include overt gender biases, other implicit biases exist. Governments can improve the gender outcomes of taxation by removing overt biases and reconsidering tax settings that currently result in implicit gender bias, and evaluating avenues within the tax system to design and implement tax policy that promotes gender equality;
  • Housing: Housing is, on average, the single-largest expenditure item across all income groups and has accounted for an ever-larger share of total household expenditure in recent years. Recent unprecedented growth in house prices has made housing market access increasingly difficult for younger generations. In July 2022, we published a report on housing that identifies a number of reform options that countries could consider to simultaneously enhance the efficiency, equity and revenue potential of housing taxes; and
  • Trust: On 5 September 2022, we published a major report on building trust between tax administrations and large businesses to improve tax morale and voluntary compliance. It reflects the results of a wide-ranging survey of over 1,200 tax officials from 138 jurisdictions on multinationals’ behaviour and tax compliance. It also covers tax officials’ perceptions of the Big Four accounting firms. The report proposes a range of actions to help both tax administrations and businesses improve communication and build trust to discourage aggressive tax planning and bring about more effective voluntary compliance. As the international community prepares for the implementation of a new global minimum tax, the results provide an important snapshot of current levels of trust and transparency among taxpayers and administrations.

Governments can improve the gender outcomes of taxation by removing overt biases and reconsidering tax settings that currently result in implicit gender bias

TW: Can you discuss any key new developments, agreements or policy objectives for the OECD on the horizon?

GPN: In June 2022 we launched the Inclusive Forum on Carbon Mitigation Approaches, inspired by the success of the OECD/G20 Inclusive Forum on BEPS. The Forum is designed to help secure a globally more coherent and better-coordinated approach to carbon mitigation, informed and facilitated by technical and objective analysis. Unlike our BEPS work, the Forum will not aim to set standards, but will help ensure the global effectiveness of combined carbon mitigation efforts by working to avoid any counterproductive negative spillovers, through an evidence-based multilateral exchange of information about the different efforts around the world to reach net zero emissions. Over time, it is our hope that better data and information sharing about the comparative effectiveness of different carbon mitigation approaches and the sharing of best practices will help inform better decisions around the world. This work will be supported by the economic, environment and tax directorates of the OECD.

Read the Global Insight OCED feature: The future of international economic co-operation and development which can be found here.

Tom Wicker is a freelance journalist and can be contacted at tomw@tomwicker.org.

Image credit: Achim Wagner/AdobeStock.com