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 growth: +0.6% Q3 2017 year-on-year
Consumer price inflation: 2.3% Sept 2017 annual
Trade: +4.3% exp, +4.3% imp, Q3 2017
Unemployment: 5.7% Sept 2017
Last update: 14 Nov 2017

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 paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • The annual OECD Eurasia Week takes place in Almaty, Kazakhstan 23-25 October. Writing in The Astana Times, OECD Secretary-General Angel Gurría urges Eurasia countries to stay the course on openness and international integration, which has brought prosperity but also disillusionment, notably regarding inequality. The OECD is working with this key region, and Mr Gurría urges Eurasia to focus on human capital and innovation to enhance productivity and people’s well-being. Read more.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

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 2017