The US Relationship with the OECD
January 14, 2016
by Krishnan Sethumadhvan, C ’17, W’17
The United States’ relationship with the OECD is an incredibly important one and is constantly evolving due to its ever-changing nature. Although the organization is sometimes derided as sleepy and technocratic, the OECD has found a way to remain relevant in a quickly shifting global landscape. No other organization so perfectly embodies the Western liberal order and its resulting political and democratic policies and as a result, no other organization seems to be as much of a “rich man’s club.” To adapt to the strategic reality that the OECD’s membership makes up a shrinking percentage of global output, they have taken multiple steps to increase its relevance. The first of these is through the expansion of the OECD and the accession of new members – chief among these is Colombia, Costa Rica, Lithuania, and Latvia. The second is through the creation of “key partners” in Brazil, China, India, South Africa, and Indonesia. These key partners are able to take part in OECD discussions and frameworks without being a part of the organization and the OECD acts as a forum for dialogue between the developed world and the developing world. The third, and most important way the OECD is re-inventing itself is through taking a stronger and more “rule-making” role in the issues that have traditionally been under its purview. Specifically, on the issue of tax reform, the OECD, in conjunction with the Group of 20, has called attention to and is pursuing solutions on the issue of Base Erosion and Profit Sharing (BEPS).
The BEPS Project began in 2014 and is an attempt to combat certain tax planning strategies by multilateral corporations that seek to deprive countries of tax revenue. Through the BEPS project, the OECD has created 15 guidelines and regulations that are meant to combat these tax planning strategies if adopted by all countries involved in the project. Some of these recommendations are fairly simple technical suggestions meant to harmonize policies internationally, while others call for and are executing on a multilateral treaty meant to allow any country to bring its tax standards up to the level of the suggestions of the BEPS Project. The United States has taken a special interest in the BEPS project because many of the multinational corporations which take advantage of the tax planning strategies seeking to be minimized by BEPS are based in the United States.
As such, the United States has taken part in the BEPS project to ensure that American multinationals are not unduly targeted by the other nations of the OECD while ensuring that the problematic tax planning is mitigated and minimized. Moreover, the United States wants to ensure that other countries do not “go rouge” when it comes to instituting tax policies within their own countries. Work on the BEPS project in the United States has been led by the Treasury Department and Deputy Assistant Secretary Robert Stacks in particular. Indeed, Treasury has played a key role in developing the original 15 recommendations from the OECD, but has decided not to work on creating the multilateral instrument that is meant to allow other countries to easily accede to OECD recommendations given that the United States already utilizes a “Model Tax Treaty” in bilateral negotiations with other countries that contains nearly all of the provisions of the proposed multilateral instrument.
Figure 1: Corporate Income taxes have been a declining share of federal tax revenue due, in large part to multinational corporation tax planning strategies, which the BEPS project seeks to combat.
In the United States though, there have been misgivings about the BEPS project, both from the Treasury Department and from Republicans in Congress. Although they share a concerned attitude towards BEPS, they differ in their problems with the project and their goals. In terms of the Treasury Department, the most recent dissent has come from Deputy Assistant Secretary Stacks who argued that nations like the United Kingdom and Australia were betraying the BEPS project and “going their own way” by implementing tax policies that went against the principles of BEPS. His other criticism of the project was that it was moving too quickly (BEPS is scheduled for completion by the end of this year) and that it should be slowed down instead of rushed through. Despite these critiques, the Treasury Department still remains in favor of BEPS in principle, but hopes to see some small changes in the United States’ favor. On the other hand, Senator Orrin Hatch (R-UT) and Rep. Paul Ryan (R-Wis) have been more stridently against BEPS proposals, claiming that it has far exceeded its original mandate and that proposals like country-by-country reporting and limits on interest deductibility will negatively impact American businesses. Hatch has asked the Government Accountability Office to kick off an in-depth analysis of various issues surrounding the BEPS project to get a sense of potential impacts on the U.S. economy in areas such as employment, investment, and revenues. In this sense, Republican opponents of the BEPS projects are fundamentally opposed to some of the recommendations that have been produced by the OECD and want the United States to be wary of the project as a whole.
Despite public admonition from the leading Treasury Department official on the issue, the United States is still publicly defending the BEPS project and the OECD from those seeking to infringe on its turf. One clear example of this came in the recent UN sponsored 3rd International Conference in Financing for Development in Addis Ababa. At this conference, the issue of tax evasion and tax planning on behalf of multinational corporations came was front and center due to the fact that lost revenue from multinational corporations deeply affects the finances of many developing countries. As a result, developing countries pushed for an international tax body to be established through the United Nations that would take on the issues of international tax evasion and planning. International tax policy has long been under the purview of the OECD and this attempt to create a new body would have sidelined the OECD in this sphere. As a result, developed countries pushed back against this new initiative and the conference was held to a standstill until developing nations backed down and allowed the BEPS project to continue.
This public defense of the OECD’s domain and its project is indicative of the fact that the United States is still fundamentally committed to the OECD’s mission and the club of nations that it represents. The OECD’s focus on creating global policy on areas ranging from technology to tax makes it in an important player in the global landscape and the fight on BEPS makes that clear.
 United States Senate. Committee on Finance. Hatch, Ryan Call on Treasury to Engage Congress on OECD International Tax Project. Senate Finance. US Senate, 9 June 2015. Web. 10 Aug. 2015.
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