Daurer and Krever on Tax Treaties; one line summary: Them that's got shall have, them that's not shall lose

Veronika Daurer and Rick Krever recently posted Choosing between the UN and OECD Tax Policy Models: An African Case Study on SSRN, of interest. Here is the abstract:

This paper reports on a study of the tax treaty policy of a group of eleven East African countries. African tax treaties tend to follow one of two model treaties, an OECD model treaty that favours the interests of capital exporting nations and a United Nations model treaty that allows capital importing countries to retain more taxing rights. The study compares the policy outcomes in treaties signed by these countries with African nations, with relatively wealthy OECD countries, and with non-African countries that are not members of the OECD. It also compares selected outcomes in African–OECD treaties with those results in treaties between a group of Asian countries and OECD members to see whether African countries have been more or less successful at wringing preferences from wealthier nations. The study suggests the African countries studied have not been as successful in retaining taxing rights in treaties with OECD countries as have Asian countries. On the other hand, OECD countries are often more generous to African countries than are other African countries.

The paper notes that the data on the connection between tax treaties and foreign investment is still inconclusive, so we can't say that what countries lose in tax revenue given up in the treaty they gain somewhere else. The data being inconclusive is consistent with my research on this some years ago, and what I've kept up with since. Although the authors are very careful in their claims, the overall message is pretty clear: powerful nations systematically use their economic clout to gain advantage over less powerful nations in tax deals. Countries share the global tax base through tax treaties. The OECD model treaty overwhelmingly designs how they do so. So this is international tax relations as the OECD has crafted it, very carefully and deliberately, over the span of decades.

Here is Daurer & Krever's conclusion:

The jurisdictions reviewed in this study are found in the same part of Africa and have histories that share many features. The similarities in their backgrounds are not reflected in their networks of tax treaties with wide variations in the features of their treaties and sometimes significant differences in the extent to which they rely on OECD model treaty or UN model treaty precedents. 

The extent to which jurisdictions choose to forgo taxing rights may depend on relative bargaining powers vis-à-vis treaty partners or domestic ideology regarding possible direct economic benefits from increased investment or indirect consequential benefits from enhanced relationships that might follow a retreat from taxing rights. As a general rule, larger and more economically advanced economies tend to retain more taxing rights in treaties than smaller, less advanced economies. Considered as a group, these African countries appear not to have been as successful as Asian countries in retaining taxing rights. Regional countries may find it beneficial to review each other’s treaty policies and consider whether the revenue costs of less reliance on the UN model and more reliance on the OECD model might outweigh the perceived investment or ancillary benefits that they hope will flow from the transfer of taxing rights to capital exporting nations. 

Regional countries might also wish to look at why OECD countries are often more generous in agreeing to greater retention of taxing rights by African countries than neighbouring African nations. 

International complaint lodged against US citizenship taxation

Further to my prior post, the ADCS press release also mentions that a group of individuals has filed a complaint with the United Nations, to protest the U.S. practice of citizenship taxation. It's about time that happened. The UN sanctioned Eritrea in 2011, for extracting a comparatively tiny amount of tax on its disapora. It did so apparently at the behest of the United States. Yet three years later the whole world is engaged in the process of perfecting citizenship taxation for the US, with no discussion whatsoever, at any official level. You can get a little info abut the UN complaint here but the complaint itself has not yet been made public. As soon as it is, I will post it.

Silencing UNCTAD

Naked Capitalism links to this RNN video in which they interview Vijay Prashad on the topic of controlling debate on trade policy, a topic that is getting more attention after that letter written by the likes of Dani Rodrik; here's what Yves has to say of the video:

"Real News Network segment gives a window into the efforts to squash criticism of the neoliberal orthodoxy in the world of international agencies. Even though the UN Conference on Trade and Development (UNCTAD) gets very little attention in the major media, its well researched and often prescient reports are enough of a threat to the orthodoxy to produce efforts by the advanced economy block in the UN to try to clip the wings of the agency. The start of this interview may seem like a bit of inside baseball, but it shortly gets to issues that are critically important."

Prashad talks about the multiple reports issued by UNCTAD that accurately predicted the financial crisis and "warning the world about what has basically taken place, which is that our social lives have become financialized," while the IMF continued to champion financialization and "in the midst of crisis was recommending the exact same recipes that it had recommended when there was no immediate crisis."  Then he talks about the institutional structure of negotiation in the UN, and talks about the attempt by Switzerland to railroad the discussion, redlining anything about financial controls and regulations.

Around 10:40 in, Prashad starts talking about IMF reports and UNCTAD reports--"for my sins, I read almost all of the IMF Reports, I read the UNCTAD reports,"and of which he says

"if you were relatively objective you would see that the IMF reports don't seem to learn from each other.  There's a lot of religion in the IMF reports.  The UNCTAD reports, on the other hand, are very strongly empirically based, there's a lot of evidence in the reports, and they have warned about specific, concrete problems in the financial sector.  This is not just a kind of religious document.  These are very precise documents that warn about specific things.  So the North has been saying that UNCTAD writings about finance exceed the mandate of UNCTAd, and it needs to return to its mandate, so what does that mean?"

He says it means deal only with the effects of the financial crisis on the developing world--don't look at the root causes of the crisis, which would entail looking at the institutions and regulations of the global north.  Prashad asks who is looking at the causes, and the answer is, no one is, and those in the global north would prefer to keep it that way.

Putting Arbitration on the MAP

Tax Analysts has asked me to become a regular contributor to TNI with a column; my first installment is on the insertion of "arbitration" in the new UN Model treaty.  If you subscribe, you can find it here; here is a pdf.  I look at the new arbitration provision in the UN Model treaty, complain that this isn't really arbitration at all, and argue that countries should be very wary about signing on to this provision.

OECD vs. UN and the making of soft tax law

TJN recently ran a guest post on the UN's attempt to build an institutional rival to the OECD for international tax policy.  The UN's work is currently confined to a committee, and the G77 would like it "upgraded to an intergovernmental entity."  The OECD and the EU oppose.  The post gives an interesting account of the issues and interests at stake.