C Explanatory memorandum by Mr Ghiletchi,
rapporteur for opinion
1. This year’s report on OECD activities in 2012-2013
centres on the organisation’s initiative called New Approaches to
Economic Challenges (NAEC) and problems relating to taxation, in
particular as reflected in the new project of [tax] Base Erosion
and Profit Shifting (BEPS). The rapporteur of the Committee on Political Affairs
and Democracy, Mr Dirk Van der Maelen, puts the two strands together
in analysing governmental and institutional failures to redress
the economic and employment situation, as well as eroding public
finances and services. This reflects a widespread distress among
the population about the functioning of not only economic, but also
democratic systems which the people perceive as sclerotic and no
longer able to adequately serve all members of society.
2. Indeed, the gap between the business and ruling elites and
the population at large has dangerously widened, as have inequalities.
The onset of digital economy that has driven globalisation, liberalisation
and interdependencies between countries in all domains has been
faster than most institutions’ ability to embrace the change. The
power of States, too, has weakened with their gradual disengagement
to the benefit of the business sector and allegedly perfect markets.
Yet the test of time over the past decade has shown that certain policy
choices were ill-adapted to the reality on the ground or were simply
wrong bets, notably as the financial realm has spun out of control
and imploded. The fall-out is instability, social wreckage, economic
mess and human suffering. And in the end – a question: Is the economy
serving the people, or are the people overwhelmed by it?
3. Mr Van der Maelen thus comments on badly needed macroeconomic
improvements to exit the crisis. He does so from the perspective
of growth and rightly puts emphasis on meaningful growth which is
driven by policies aiming to promote societal well-being. The latter’s
importance is now clearly stated by the OECD in its strategic papers,
such as the Green Growth, the Better Life Initiative and notably
the New Approaches to Economic Challenges.
4. The time now is not for small fixes, but for deep-reaching
reforms in economic thinking and the way we rebuild our economy.
It is indeed sobering for politicians to hear from the highly respected
economic think-tank a reckoning on the “flawed assumption about
the self-equilibrating character of the economy” and hence “the need
to upgrade the regulatory capacities of governments”. Periods of
crisis tend to test the strength of political and economic systems,
whilst creating a propitious environment for governments to push
ahead with numerous reforms and regulations. It is in the best interest
of all stakeholders that the added benefits of reforms and additional
regulations outweigh the losses that businesses may suffer as a
result. Therefore, good resolutions – protecting people as well
as promoting the growth of businesses – now
need proper follow-up and strong political support, also from parliamentarians,
including of this Assembly.
5. Such a quantum leap is all the more urgent in the light of
the rapporteur’s emphasis on the long-term consequences of short-term
policy measures – and mistakes. Past decisions, especially at the
European level, often proved to be “too little and too late”. At
the same time, the deep scarring effects of dogmatic austerity are now
becoming visible not only on young people, but also across all society.
Current under-investment – in productive capacity, public services
and human capital – will only lengthen the path of recovery by curtailing the
economic and social potential of our countries.
6. Another message we can learn from this analysis is that “one
size fits all” policies rarely work in real life. Even conventional
economic wisdom might apply very differently to specific national
circumstances: what is feasible in Estonia may not work in Poland
and be totally unrealistic for Greece. The responsibility of national politicians
is hence to discern how to best adapt the international community’s
advice domestically and win the local population’s minds, if not
their hearts. The responsibility of international organisations
such as the OECD, the International Monetary Fund (IMF) or the World
Bank lies in crafting more carefully nuanced policy advice.
7. Mr Van der Maelen then puts the finger on the complex and
sore issue of optimising taxation. In theory, the cause of fair
taxation transcends political differences and misconceptions, just
as an independent judiciary is universally seen as a cornerstone
of a modern State. In practice, it does not, and our States continue
to grapple with tax evasion, as well as aggressive tax avoidance
practices, despite some welcome, but modest progress in stepping
up pressure on tax havens.
8. I appreciate Mr Van der Maelen’s perseverance in advocating
for bolder measures in this area at the international level and
in particular via the OECD. The recommendations – voted by this
Assembly a year ago on the basis of the report by Mr Van der Maelen
on “Promoting an appropriate policy on tax havens”
Note – set out a path to follow. I recall
a lively debate that preceded the adoption of this text in the Assembly,
not least on the weakness of the current OECD definition of a tax
haven as based on four criteria. Whilst there is nothing wrong with
these criteria as such, we know that even one or two of them suffice
to qualify a financial centre as a tax haven or as a non-cooperative
jurisdiction. Moreover, certain tax regimes of otherwise well-behaved
countries can be considered as harmful tax practices that infringe
other States’ interests. The OECD should therefore use its BEPS
process to strengthen its definition of a tax haven.
9. Moreover, I have doubts about the effectiveness of the OECD
Global Forum’s
Note current approach as regards
bilateral agreements on the exchange of tax information. 850 such
agreements so far worldwide may sound like an impressive record,
but is not a rational way to proceed if compared to a multilateral
approach such as via a protocol to the joint OECD-Council of Europe
Convention on Mutual Administrative Assistance in Tax Matters (ETS
No. 127). When a tax haven signs a minimum of twelve bilateral agreements
(often with similar secrecy jurisdictions), another 180 deals with
the remaining countries still need to be agreed. In fact, in order
to have a truly global coverage, about 37 000 such agreements are
needed.
10. Moreover, in order to achieve a genuine breakthrough, States
need to mainstream the requirement for an automatic exchange of
information (rather than “upon request”) via the various instruments
for international tax co-operation. Otherwise, tax evaders exploit
gaps in the information exchange systems and, if need be, simply
move their funds from one hideout to another. The rapporteur therefore
rightly pleads for enhanced transparency in this area, also as regards
the disclosure of ultimate beneficiary ownership in complex structures
such as trusts and foundations, be they corporate or private. Moreover,
I believe that the OECD could, through its NAEC process, address
the risks posed by shadow banking and propose measures for better oversight
and regulation, as recommended by the G20 Summit in Saint Petersburg
on 5 and 6 September 2013.
11. In this context, I commend the OECD’s resolve to help States
tackle tax avoidance more efficiently by getting to grips with abusive
accounting techniques used by multinational enterprises and structural
flaws in the international tax system. I believe this Assembly can
contribute to the BEPS process by urging the OECD to champion the
obligation for multinational companies to report comprehensively
on their real costs, profits and taxes paid in each country where
they operate. This could steer transition to a more just global
system for allocating corporate taxes on profits generated in each
country. This collective effort is central to pursuing greater transparency
and social justice, as well as shared prosperity and lower inequalities.
Another significant way tax avoidance can be tackled is by simplifying
the tax laws in each country. In many cases, complex fiscal policies
leave loopholes that can be exploited, mainly by the wealthier class
of society, thus leading to even more inequality.
12. As we are approaching the 2015 deadline for meeting the Millennium
Development Goals (MDGs), it is important to note that, although
it seems that inequalities – between business and ruling elites
and the population at large – have expanded lately, technological
advances, development aid and structural reforms have also helped
to lift millions of people out of poverty. Discussions have already
begun on the post-2015 framework for MDGs. Considering that this
has been the most effective poverty reduction campaign in the history
of humanity, it is crucial that we continue our intense efforts
in that direction in order to give as many people as possible the
chance for a better future. Moreover, we need to make a particular
effort not to neglect the poorest of the poor just because it is
easier to help those just below the poverty line.
13. In conclusion, I propose that the Committee on Social Affairs,
Health and Sustainable Development supports the report on the OECD
activities in 2012-2013 and submits amendments to the draft resolution.
The two recent OECD initiatives (NAEC and BEPS) are worthy of strong
support from this Assembly and should be followed also in future.
In order to broaden the impact of its work in these areas and reach
a larger circle of countries, the OECD ought to deepen synergies
with institutional partners such as the IMF and the Bank for International
Settlements.
