Tax Analysts Blog

Does the U.N. Matter in the Tax World?

Posted on Mar 16, 2015

The OECD's base erosion and profit-shifting project has dominated the international tax scene for over a year. Ever since the G-20 tasked the organization with finding solutions to the perceived problem of multinationals paying low effective tax rates, the international tax community has talked about little else. The OECD hoped that BEPS would preempt unilateral action by developing countries (particularly India, China, and Brazil) to move away from its model treaty and the arm's-length method. In that regard, the BEPS project tried to steal the thunder of another group that has yet to be taken seriously by the developed world: the United Nations' tax committee.

Yes, the United Nations is interested in tax matters. For some time, the U.N. Committee of Experts on International Cooperation in Tax Matters has met annually in Geneva to try to draft an alternative to the OECD's model treaty. The U.N. treaty would be much more favorable to the developing world and allow so-called source countries greater access to tax revenue. The committee's main function so far has been to pay lip service to the arm's-length method, while its technical guidance focuses on showing tax administrators how to ignore the method or get around some of its less favorable rules.

The United Nations' efforts have not gone all that well. The U.N. committee is underfunded, frequently vilified by business groups, and almost totally ignored by tax administrators in countries with powerful multinational companies. For a while, the United Nations seemed to have found its role as the voice of the developing world, but the OECD's efforts to integrate those nations into the BEPS project have threatened to make even that function irrelevant.

In response to these and other problems, U.N. Secretary-General Ban Ki-moon said last week that he thought the U.N. committee should move its meetings to New York. He argued that the meetings would generate more interest in New York than they do in Geneva and that by holding them there, funding and staff would be easier to secure. He also suggested, somewhat strangely, that the shift would give the U.N. model treaty and its manuals on bilateral treaties and transfer pricing "more authority." But Ban's report on the committee didn't just focus on its meeting locations. It also called for more committee sessions and increased membership.

Would any of this actually make the United Nations a bigger player in tax policy? Probably not. Large developing countries are much more likely to either act on their own or work to influence the OECD than they are to wait for the United Nations to adopt a model treaty that is taken seriously by the developed world. And without strong support from the BRICS the other nations of the G-20 are unlikely to fully engage with the United Nations when they can simply continue to use the OECD as their vehicle for multilateralism. In the end, it probably wouldn't matter if the U.N. committee met on the moon or had 100 members -- any action taken by the increasingly politically irrelevant United Nations is highly unlikely to have a significant effect on tax policy.

Read Comments (2)

robert goulderMar 16, 2015

Excellent post on an under-appreciated topic. The best way to ignore the
demands of source countries is to deny them a seat at the table. Mission

At one level, I suspect the BEPS project is all about bringing the BRIC nations
into the tent.
Otherwise OECD has a problem: at some point the amount of global trade outside
their club will exceed that on the inside.

IARMar 17, 2015

I wonder why the authoer doesn't fact check his article?

The UN's model double tax treaty has been updated in 2002. Another update is
expected for 2017. Moreover, the OECD model actually relies on work by the
League of Nations, the predecessor to the UN.

The UN TP Manual is consistent with the ALP except in Chapter 10, which gives
countries the opportunity to describe their country practice.

I understand that slander will generate more clicks, but I suggest that
journalistic reporting be based on facts.

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