Tax and development

Group Strategic Adviser, Tax Policy, Rio Tinto plc; Chairman, Tax Committee of the Business and Advisory Committee to the OECD (BIAC)

Tackling the challenge to build well-functioning tax systems in developing countries requires concerted international co-operation among developed and developing countries, international organisations, business and civil society. 

A functioning tax system is increasingly recognised as the most critical factor in allowing developing countries to build a strong civil society. While aid is important, it will not bring about the changes and revenue required to boost strong, sustainable and balanced growth in these countries.

Sustainable development rests on the ability of foreign and domestic private sectors to increase their investment in infrastructure, agriculture and other economic sectors. In order for developing countries to realise the benefits of that growth, business believes a larger share of aid budgets needs to be spent on capacity building for tax administrations; the current proportion of 0.7% is too low to achieve this.

The private sector can play an essential role in capacity building and domestic resource mobilisation, through providing technical assistance to growing tax administrations in developing countries. As investors, companies recognise the severe domestic challenges in developing countries such as persistent poverty, corruption, political instability, burdensome bureaucracy or inadequate infrastructures.

A tax system that supports investment and is part of a broader investment framework which includes rule of law, predictable and transparent legislative frameworks, open competitive markets for trade and investment, and generally good governance is crucial for successful sustainable development.

BIAC believes that OECD work on taxation and development, including contributions to the G20 in this area, is especially relevant to development polices aiming to foster sustainable economic growth and societal well-being. Business believes that a number of important elements are necessary to progress in this area: capacity building, effective transfer pricing frameworks, transparency, and countering international tax evasion and exchanging information.

Capacity building for tax administration/revenue institutions in developing countries allows them to move from aid to sustainable revenue. It is the basis to develop the public infrastructure and services and a social benefit system in a sustainable way and to transform an informal economy into a formal one. Development aid should therefore be allocated to tax administration infrastructure, including human capital and technology (both hardware and software for a modern tax system).

OECD co-operative efforts with developing countries to build capacity in the field of transfer pricing based on the Arms Length Standard is vital for investment and for the competitiveness of both business and developing country economies. Transfer pricing is a complex and often misunderstood concept. It requires technical expertise and sufficient resources to be correctly implemented and enforced.

As a priority, business is working with the OECD and other stakeholders to provide guidance and technical assistance to help developing countries understand and apply both the OECD Transfer Pricing Guidelines and the principles contained in the OECD Model Tax Convention. Such cooperation is also essential to build confidence between governments and the private sector in this field.

The role of transparency and disclosure in driving development as it relates to international business taxation needs assessing, and this work should be undertaken with a clear development objective. In this respect, current initiatives such as the one for the extractive industries should be tested and evaluated before governments take any further steps. It is vital that we develop best practice in this area through tried experience.

How transparency on the part of revenue authorities can contribute to efficient and effective tax collection should also be considered. Business welcomes the work of the Global Forum on Transparency and Information Exchange at the OECD, whose activities and multilateral co-operation for effective transparency and exchange of information are clearly in the interest of legitimate business. Business also engages the Forum of Tax Administration in this context.

In short, business recognises the urgent need to build tax administration capacity, supports OECD efforts with other international organisations and the financial institutions to achieve progress in this important area, and seeks an active role in the partnership of all relevant stakeholders. Soundly implementing OECD international tax standards is a critical factor for investment, and business urges governments to continue developing transparent predictable tax regimes as a key element to sustainable economic development.

The Business and Industry Advisory Committee to the OECD

See also: 

OECD Observer (2008), "Transfer pricing: Keeping it at arm’s length".

OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

OECD Model Tax Convention on Income and on Capital

Global Forum on Transparency and Information Exchange

The opinions expressed and arguments employed herein are those of the author and do not necessarily reflect the official views of BIAC or those of Rio Tinto plc.


©OECD Yearbook 2012

 




Economic data

GDP : +0.5%, Q4 2014
Employment rate: 65.9%, Q4 2014
Annual inflation : 0.57% Feb 2015
Trade : -3.0% exp, -3.7 imp, Q4 2014
Unemployment : 7.022% Feb 2015
More moderate expansion ahead? Composite leading indicators
Updated: 23 Apr 2015

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Rana Plaza
  • Wal-Mart, Other Retailers Sued over Bangladesh Factory Collapse Two years after the April 24, 2013, Bangladeshi factory collapse in the capital of Dhaka, the victims' families filed a lawsuit in U.S. federal court in Washington against Wal-Mart Stores Inc and other U.S.-based companies that sourced out their products from the Rana factory. Read more on Telesur's website.
  • Today, after three years of drought, California is in the midst of a full-blown political and environmental crisis, with restrictions imposed across the state, reports the Financial Times.
  • Lack of water holding back Asian growth In Asia, the world’s most dynamic region with the fastest economic growth, 75% of countries face serious water shortages.
  • Why is the gap between rich and poor growing despite rises in GDP? Do benefits help? Does aid work? (The Guardian)
  • ADB water
  • Greek finance minister Yanis Varoufakis expressed its scepticism towards the Eurozone’s institutions and gave ideas for ways forward. "Greece must become reformable again", Yanis Varoufakis said.
  • Business brief: Israel's water
  • #OECD360: Your country in figures.
  • How to ensure transparency in public procurement? Read Cobus de Swardt's article on OECD Insights.
  • Asia to maintain a strong 6.3% growth rate in 2015 and 2016, according to the Asian Development Bank
  • After three decades of extraordinary economic development, China is shifting to a slower and more sustainable growth path, according to the OECD's latest Economic Survey of China.
  • In pursuit of the American Dream
  • Iceland's strong recovery stems from the good use of its natural resources, the energy sector and tourism according to Peter Dohlman, IMF Mission Chief for Iceland.
  • cyclone
  • Government representatives and experts from around the world are gathering in Japan this week to develop a post-2015 framework for global disaster risk reduction. The World Bank and the Global Facility for Disaster Reduction and Recovery (GFDRR) will share expertise at the conference.
  • Switzerland’s recent moves towards greater tax transparency were welcomed by the Global Forum on Transparency and Exchange of Information for Tax Purposes, based at the OECD, as a boost to international efforts to end tax evasion. Work will continue with Switzerland, notably on implementation, in 2015.
  • Help bridge the gap between business integrity policies & practices:participate in this new OECD survey by clicking on the image.
  • What can we do to promote better literacy skills for all? Read Andreas Schleicher's latest blog on oecdeducationtoday.
  • pisa
  • Secretary General Angel Gurría describes the Programme for International Student Assessment (PISA) as a useful tool to enhance educational systems but states that improving a country's ranking should not be a goal per se. Article in Spanish by El País.
  • [VIDEO] Although many countries have made great progress in narrowing gender gaps in education, new challenges are looming.
  • 5 things you might not know about the state of Amazonas. The World Bank identifies the main colossal challenges Brazil's biggest state is facing.
  • Gender mainstreaming: young French lady working in an engine assembly plant. Women and men in the same boat when it comes to job insecurity. © Raphaël Helle / Signatures / La France VUE D'ICI
  • The Asian Development Bank together with the International Labour Organization challenge the concept of women's work in Asia and the Pacific.
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.
  • The 5th Anti-corruption conference for G20 governments and business in Istanbul on 6 March will address how all businesses can play their part in contributing to growth and investment, and can operate with clean hands in a safe environment.
  • Success story. Discover the story of this young Ethiopian woman who launched a successful business in the footwear industry and became a UN Goodwill Ambassador for Entrepreneurship.
  • Transports in Asia. The Asian Development Bank advocates sustainable transport in a continent where vehicle ownership is perceived as a sign of social success.
  • Vote for your favourite photograph! This World Bank #EachDayISee photo contest aims to display visual stories from all over the world through which people express what they would like to see changed and improved.
  • Why is investment so low in the euro area? This short IMF blog post gives you an insight into the causes of the euro-zone's drastic decline in investment.
  • Have your say! The UN wants to know what matters most to you: pick six global issues in the list and send it to the United Nations.
  • Tim Harcourt Video
  • G20 and Australia: Bestselling economist Tim Harcourt speaks to the BBC about how Australia has gone from "Down Under to Down Wonder".
  • Clear air and healthy lungs: how to better tackle air pollution. From New Delhi to Accra, millions of people breathe polluted air. A new report examines the World Bank’s experience working to improve air quality.

Most Popular Articles

Poll

What issue are you most concerned about in 2015?

Euro crisis
Unemployment
Global warming
International conflict
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2015