COMMENTARY

Towards an Intergovernmental
Tax Committee
Abdul Muheet Chowdhary

Indias support for the

establishment of an
intergovernmental tax committee
at the United Nations is a move
towards a more just global tax
regime. This article examines
some of the key deficiencies in the
existing system, reasons why an
intergovernmental tax body is
necessary and suggests some
steps that could be taken by the
Indian foreign policy establishment
in pursuing this goal.

he United Nations (UN) held the

Third International Conference on
Financing for Development (FFD)
in July in Addis Ababa, Ethiopa, to discuss how the post-2015 Development
Agenda, including the sustainable development goals (SDG), would be financed.
The conference consisted of eight plenary
sessions, six round tables and nearly 200
side events. The topics discussed were
wide-ranging from technology transfer to
overseas development assistance (ODA) to
climate financing. However, one of the
most important questions at the conference
was that of a global intergovernmental
tax body, which resulted in rancorous debates and led to the drawing of clear
fault lines between rich and poor nations.
Global Tax Regime Deficiencies

Views expressed are personal.

Abdul Muheet Chowdhary (abdulmc@gmail.
com) is a legislative aide in Lok Sabha and a
former consultant to the United Nations.

16

Currently, the norms on international

taxation are decided de facto by the
Organisation for Economic Co-operation
and Development (OECD). This is a grouping of 34 of the worlds richest countries
including the United States (US), the
United Kingdom (UK), France and Japan.
These are the same countries where many
of the worlds most powerful multinational
corporations (MNC) are headquartered
and who have tremendous influence on
policymaking. The standards of international taxation, especially on crucial
topics such as double taxation avoidance
and transfer pricing, are decided exclusively by these countries. However,
these standards disproportionately affect developing countries where a large
amount of MNC operations take place.
In 2012, India raised this issue in a letter
to the UN Department of Economic and
Social Affairs. It stated that the OECDs
Model Convention on Income and Capital
and the Transfer Pricing Guidelines for
Multinational Enterprises and Tax Administrations do not recognise the right of
taxation of the source country, eroding
their tax rights and leading to significant

revenue loss (UN 2012). Further, it stated

that these rules reflect agreements only
amongst OECD countries, and thus, work
to their benefits alone. Manuel Montes,
senior adviser on Finance and Development at the South Centre in Geneva, stated
that the rules of the current tax system
are three times more expensive for nonOECD countries (Anyangwe 2015).
Additionally, developing countries are
forced to provide tax breaks and incentives
to attract investment which leads to further revenue loss. This is worsened by the
fact that MNCs can simply shift to another
country if such incentives are not provided
or revoked. This results in a devastating
race to the bottom where countries
compete with one another in providing tax
exemptions. The scale of loss owing to this
is staggering with annual global estimates
ranging from $100 billion1 to $1 trillion
(Kar and Spanjers 2014). In 201213, the
alleged transfer pricing adjustment cases in India alone accounted for a revenue
loss of $14 billion (Khan and Biyani 2015).
An alternative to the OECD is the UN
Committee of Experts on International
Cooperation in Tax Matters. This is a
subcommittee under the UNs Economic
and Social Council (ECOSOC) and its core
function is to review and update the UN
model double taxation convention between developed and developing countries. It also functions as a forum for promoting international tax cooperation
and provides special assistance to developing countries as well as conducts
capacity building programmes.
However, its effectiveness is severely
limited. It consists of only 25 members
which is inadequate to deal with global tax
policy effectively. Further, the members are
chosen at the discretion of the secretary
general, resulting in a lack of transparency in appointments. The committee has
inadequate funding, a limited secretariat and meets for five working days a year.
Its limitations have been recognised and
the ECOSOC has been undertaking consultations to strengthen the institution.
An Intergovernmental Tax Body
It is in this context that India and Brazil
led the G-77 including China (a total of
136 countries) at Addis Ababa in the
demand that the UN Committee of

SEPTEMBER 26, 2015

vol l no 39

EPW

Economic & Political Weekly

COMMENTARY

Experts on International Cooperation in

Tax Matters be upgraded into an intergovernmental tax body. This demand
was first raised by India in 2010 in a
response to the ECOSOC resolution
2010/33, which requested comments by
member states on the strengthening of
institutional arrangements to promote
international cooperation in tax matters.2 India stated that it supports an
inter-governmental commission which
has balanced representation from the
governments of developing and developed
countries, arguing that such a body
could far more effectively foster cooperation among national tax authorities
and promote multilateral cooperation.
There are several other advantages of
the UN intergovernmental tax body,
some of which have been listed by the
European Network on Debt and Development (Eurodad).3 It would provide a
forum where a truly global and coherent
tax system can be created, free of the
complexity and inconsistency that exist
today among the thousands of bilateral
tax treaties and parallel systems. It
would provide a framework for ending
the current death spiral of tax incentives. Discrepancies among double taxation regimes can be eliminated. Coordinated global action against tax havens
can be taken as opposed to the current
ineffectual practice of blacklisting. A
more stable and consistent global business environment can be created which
has reduced risk, legal uncertainty and
transaction cost and encourages true
global movement of goods and services. Such an environment would create
a more level playing field and reduce
the oligopolistic powers of MNCs. This
would result in increased tax collection
enabling more financing for development. In short, it would enable the
creation of a fair and just global taxation regime.
For these reasons the proposal for
an intergovernmental tax body found
an overwhelming resonance in the
developing world and was included in
the draft outcome document 4 of the FFD
Conference. Paragraph 25 of the Draft
Addis Ababa Accord of the Third International Conference for Financing for
Development, 2015 states that
Economic & Political Weekly

EPW

SEPTEMBER 26, 2015

We welcome the work of the United Nations

Committee of Experts on International Cooperation in Tax Matters, including double
taxation treatises, transfer pricing, exchange of information, the taxation of extractive industries and capacity building. We
decide to upgrade the Committee to an intergovernmental committee, to complement
the work of other ongoing initiatives and
further enhance the voice and participation
of developing countries in norm setting for
international tax cooperation.

Unfortunately for these very same

reasons the proposal drew fanatical
opposition from the rich countries. The
US, UK, France and Japan led the efforts
to kill the proposal and through negotiations that lasted into the 11th hour succeeded in having the paragraph deleted.
Paragraphs 2729 of the final outcome
document5 contain the replacements.
These broadly endorse the status quo
and call for the following:
(1) Increased transparency and accountability in tax cooperation with voluntary
discussions on tax incentives in regional
and international forums.
(2) Increased assistance to developing
countries and enhancement of ongoing
initiatives such as the OECDs Base Erosion and Profit Shifting (BEPS) system,
the Tax Inspectors without Borders initiative and the International Monetary
Funds initiative on capacity building of
tax collection.
(3) Strengthening of the UN Committee
of Experts on International Cooperation
in Tax Matters through
(a) Increasing the frequency of meetings to two sessions a year with four
working days each.
(b) Increased engagement with ECOSOC
through a special meeting on International Cooperation on Tax Matters.
(c) Increased transparency in appointments of committee members by making the secretary general consult the
member states.
However, these are piecemeal attempts at best. The BEPS is a product of
the same system which has created the
present difficulties and the Tax Inspectors without Borders initiative has
been ridiculed by developing countries
which highlight that the OECD nations
are unable to collect tax from the MNCs
in their own jurisdictions and are hence
in no position to preach to others.
vol l no 39

The bright side of the entire affair has

been that it has united the developing
world on this issue in an unprecedented
manner and Indias leadership has been
much lauded. The movement towards
creating an intergovernmental tax commission has now entered a new phase
and there are many opportunities for
making it a reality.
Steps to a Commission
There are several strategies that could
be taken by the Indian foreign policy establishment in pursuing this goal. The
first and most important step is to widely
publicise the issue. It directly affects all
the citizens of the planet and public
opinion must be strongly mobilised on
this front, especially in the developed
world. The inequities of the current system
must be consistently highlighted as must
the advantagesfor allof the alternative. The Indian diaspora is highly
influential in several of the OECD countries
and can be tapped into for mobilising
public support. Such a strategy was followed in the case of stockpiling foodgrains
at the World Trade Organization and the
Prime Minister used his communication
skills to successfully convey the diplomatic achievements there. The issue of
taxation affects a much wider section of
the public and hence needs to be publicised more assertively. The Prime Minister
and the foreign minister both have
enjoyed excellent receptions in their
travels around the world and this can be
included as a talking point on their agenda.
The second step is for the Indian diplomatic corps to mobilise support among
the member states of the ECOSOC. Ultimately the decision to upgrade the committee into an intergovernmental one
will be taken in the ECOSOC, not the
general assembly. Article 67(2) of the UN
Charter and Rule 60(1) of the Rules of
Procedure of the ECOSOC states that
decisions will be taken by a majority of
members present and voting. Thus the
task is to ensure that a majority of ECOSOC
members will vote in favour of the resolution. Given the preponderance of developing nations in the current membership and the commitment already showed
by the developing world in this regard, this
should not be a monumental challenge.
17

COMMENTARY

Further, currently all the BRICS (Brazil,

Russia, India, China and South Africa)
nations are members of the ECOSOC. India
and Brazil have already initiated the
movement, South Africa and China support the move and if Russia is brought
fully on board then working in concert
with the BRICS nations can provide powerful leadership to the developing world.
With enough nations on their side, the
financial might of the OECD will be inadequate before the force of numbers in
the next substantive session of the ECOSOC,
where the decision will be taken.

18

Notes
1

United Nations Report Urges Greater Coherence

between International Tax and Investment
Policies press release by United Nations Conference on Trade and Development on 25 June
2015; retrieved from http://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=253
UN, P R (13 March 2012). Letter No.PMI/
NY/152/2/2012 retrieved from http://www.
un.org/esa/ffd/tax/2012ICTM/LetterIndia.
pdf
Eurodad (nd): 10 Reasons Why an Intergovernmental UN Tax Body Will Benefit Everyone; retrieved from European Network on
Debt and Development: http://eurodad.org/
files/pdf/55828f0985a99.pdf
Draft Addis Ababa Accord of the Third International Conference for Financing for Development released on 7 May 2015; retrieved from

the UN: http://www.un.org/esa/ffd/wp-content/uploads/2015/05/revised-draft-outcome.

pdf
Resolution 69/313 of the UN General Assembly.

References
Anyangwe, E (2015): Glee, Relief and Regret: Addis Ababa Outcome Receives Mixed Reception, The Guardian, 16 July, available at:
http://www.theguardian.com/global-development/2015/jul/16/outcome-document-addisababa-ffd3-financing-for-development
Kar, Dev and Joseph Spanjers (2014): Illicit Financial Flows from Developing Countries: 2003
12, Global Financial Integrity Report.
Khan, J A and N Biyani (2015): The Third Internaitonal Conference on Financing for Development,
New Delhi: Centre for Budget and Governance
Accountability.

SEPTEMBER 26, 2015

vol l no 39

EPW

Economic & Political Weekly