Letter from America: Paying More Tax vs. Uncertainty

June 7th, 2011

‘We don’t care how much tax we pay, as long as you tell us how much it is, let us pay it and leave us alone’
Angel Gurría, Secretary General of the OECD

Herve Cortinat/OECD/Flickr*

Perhaps not what you might expect to hear from the head of tax from a major global bank. But as the most influential tax professionals from across America gathered in DC to discuss the latest developments in business taxation with the OECD, simplicity and certainty was the resounding call from business.

The OECD is looking for its place in the world, and it’s pretty clear that this “rich countries’ club” is not as dominant as it once was and is now clamoring to pull in support from the emerging economies.  And with developing countries being touted as having double digit growth potential, while the pole position for Africa and Latin America’s largest trading partner has been lost to China, the OECD is looking beyond its borders to restore its raison d’etre. Tax and development is a key piece in this game.

So as we expounded the virtues of tax—the development potential, the business case, and the ethics—the argument for strong international standards came not, as you might expect, from the NGOs but from the tax director of BP, the behemoth energy company. It’s clear that Dodd-Frank (U.S. legislation requiring oil gas and mining companies to disclose payments to governments on a country-by-country basis) has now been accepted by business, and they now want international standards that ensure a level playing field.

Of course, there are some issues to iron out, such as countries where business operations are dependent on secrecy agreements—notably, Angola, Qatar, and Cameroon. But in contrast to Shell’s Peter Voser, who suggested this was an argument against mandatory transparency standards, BP’s argument was much more reasonable: that it is unfair to expect business to sort out these inconsistencies, and rather, governments should be using diplomatic engagement to sort it out.

And what of multinational tax avoidance? In a room full of multinationals, tax lawyers, and tax planners, no one denied that it happens. But in developing countries, they were clear that they wouldn’t mind paying more to buy their way out of hassle; whether that be reputational risk, disputes in court, bad relationships with governments, or unexpected bills.

And here lies a question for the OECD’s work on tax and development. Transfer pricing is perhaps the most complex area of taxation. With Joe Guttentag—the veteran U.S. treasury official who originally took transfer pricing to the OECD in the 1960s—not convinced that it is the best approach for developing countries, will the OECD look at ways of simplifying the administrative burden? It could provide countries with revenue which the companies don’t mind paying in return for a bit of certainty. OECD countries may have to give up some of their taxing rights to developing countries, but if the OECD wants a slice of that double digit growth I mentioned earlier, it might be a price worth paying.

* Image License: Some rights reserved by OECD

Written by David McNair

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