Conference on the 50th Anniversary of the OECD Model Tax Convention, remarks by Angel Gurría

Remarks by Angel Gurría, OECD Secretary-General

Paris, 8 September 2008

I would like to welcome you to this Conference on the 50th Anniversary of the OECD Model Tax Convention. I am delighted that Madame Christine Lagarde, France’s Minister for Economy, Industry and Employment, will be joining us tomorrow. 

We are grateful that so many distinguished tax treaty specialists from all over the world have chosen to celebrate this 50th Anniversary with us. Our annual meeting has become the largest regular inter-governmental event dedicated to tax treaty issues, with representatives of more than 100 governments. But this year’s gathering is special, not only because it marks the 50th Anniversary of the Model, but also because, for the first time, it includes representatives from the private sector.

The role of the OECD

When your predecessors gathered in the Château, 50 years ago, to launch the first part of what became the Model Tax Convention, the world was a different one and the Marshall Plan, the precursor of the OECD, was just starting. Helping devastated countries from World War II recuperate eventually evolved into a much broader mission: to help the world economy work better and to serve as a hub for the discussion of global policy issues.

Our goal is to help governments improve their public policies to make the most out of globalisation. We are an organisation focused on achieving consensus and devising evidence based solutions to tackle the most pressing global challenges. Increasingly, countries are asking us to share our collective experience in the design of economic and social policies in response to the pressures of a globalised world.

We are actively engaged in a process of enlarging our membership and enhancing our engagement with non members to respond to transformations in the world economy. Accession talks are already in progress with Chile, Estonia, Israel, Russia and Slovenia. In parallel, we are enhancing our co-operation with Brazil, China, India, Indonesia and South Africa with a view to possible membership. And we are strengthening our relations with more than 100 other developing countries. 

My expectation is that in the second decade of this century we will be an organisation of 40-plus countries, from all continents, representing around 80 per cent of both the world's GDP and cross-border trade.  This expanded membership will enable the OECD to better serve the international community and will reinforce our role as a place where solutions to global issues are sought.

Tax and Investment

This Conference is timely. The world is undergoing an economic crisis that shines a spotlight on countries’ growing economic interdependence and the need for multilateral co-operation. The US and Europe are experiencing one of their worse economic downturns, with limited capacity to use policy levers given the context of high inflation and tight budgets. Commodity and food prices have experienced unprecedented hikes and extreme volatility and we are witnessing a global crisis of confidence.

While some emerging economies are still growing briskly, there is no such thing as a complete “decoupling” and the full impact of the US situation is still to be felt. The stalling of the Doha trade talks has shown both the increasing difficulty of achieving a wide consensus on international economic issues and the need to redouble our efforts on that front.

In this difficult international environment, facilitating cross border investment is one of the key components to expand the economy’s productive capacity, to drive job creation and economic growth and to promote innovation and trade.

Just as investment is key to development, appropriate tax policies are key to investment. It is important that tax policies do not create obstacles to cross border activities, but also that they promote investment in a fair and competitive manner.

The OECD’s role in promoting a growth enhancing tax environment

All of our governments are struggling with how to reconcile the emergence of a growing number of global taxpayers with national tax systems. Few countries are prepared to give up their fiscal sovereignty, even in integrated trade blocks like the European Union. Thus, harmonising tax systems through the creation of a single worldwide tax system, or even an OECD wide system, is not on the agenda.

What, then, is the appropriate way to respond to this challenge? The only politically acceptable response is better international co-operation. 

Co-operation is required to ensure that taxes do not become the last barrier to expanding cross-border trade and investment, but also to ensure that taxpayers pay the right amount of tax, at the right time and in the right country.  It is worrisome to see some countries that still try to attract tax evaders worldwide through secrecy and lack of transparency. It is also worrisome that some financial intermediaries still make a business out of that and promote the use of tax havens.

Ladies and Gentlemen: it is time to stop these practices by increasing international co-operation to counter them.

And the OECD, working with other organisations, is well placed to help governments to achieve such better international co operation. We have a global reach, strong analytical skills and a consensus-building approach with an emphasis on non-binding guidelines and peer reviews. The OECD can therefore play a key role to ensure that the costs and benefits of globalisation are fairly shared. The very fact that we have over 100 countries here today attests to that.

It also attests to the importance all of you ─ as tax administrators, policy officials or private sector representatives ─ attach to achieving the goal of having a tax treaty network that effectively avoids double taxation, but also prevents tax evasion and avoidance.

But no matter how hard we and other organisations work at achieving an international consensus on international tax rules, disputes between taxpayers and tax administrations, and between tax administrations themselves, will inevitably arise. This is why I am particularly pleased that the 2008 update of the OECD Model Tax Convention contains a provision that will greatly improve the existing tax treaty dispute resolution mechanism and will provide for a mandatory arbitration procedure designed to produce binding results. 

The OECD Model Tax Convention: a success story

Let me now turn specifically to the OECD Model Tax Convention, whose 50th birthday we are celebrating today. 

Throughout these five decades, the OECD Model has established itself as the means of settling the most common problems that arise in the field of international taxation on a uniform basis.

Three elements have been crucial in building its success: the capacity to adapt international tax rules to the changing business environment, the enhanced participation of the business community and the progressive involvement of non-member countries.

Today, the OECD Model includes the positions of thirty non-Member economies, in addition to those of our Member countries. This brings the total number of countries that have officially stated their position on the Model to sixty, a number I am sure will keep increasing with the next update of the Model, targeted for 2010. This is a reflection of our current transformation into a more global and inclusive Organisation.

In spite of much progress, the OECD Model Convention is still far from perfect. There is always room for improvement and this also applies to the OECD Model. I know that the last session of this Conference is dedicated to this topic, but allow me to make four comments now.

One challenge is to find ways to streamline the treaty amendment process so that changes agreed at the OECD level can be inserted in bilateral treaties in a timely manner. This change is crucial to reflect the constantly evolving economic environment within which treaties now have to operate.

Another challenge is that a network of bilateral treaties, even one as extensive as now exists, may be inadequate to deal with the multijurisdictional tax problems faced by globalised businesses and their mobile labour forces.  More thought has to be given to how to achieve a more effective structure for handling these issues. 

Furthermore, the involvement of non-member economies, the OECD enlargement process, and the effects of globalisation in general, call for a re-examination and possible adaptation of the international tax principles on which the OECD Model is based. There will certainly be some hard fought debates in the coming years, and this is exactly the reason why we are here, to promote and facilitate the creation of a consensus at the broadest international level.

Finally, we need to explore how we can further incorporate value added taxes into the model. It is a waste of opportunities that despite 141 countries having a VAT, there is no international consensus on some of the basic concepts in this tax and how they should be applied.

Closing comments

Ladies and gentlemen,

The challenge is for the new OECD tax treaty Model to be as successful in the next fifty years as it has been in the previous fifty. I am certain that at the 100th anniversary of the OECD Model, in 2058, most of the faces will be different, maybe even the topics. The world will be, too, but I am also sure that the international taxation architecture will still require your commitment and a renewed effort from all of us.

I wish you an enjoyable and productive two days and encourage you to make the most of the opportunities that this Conference provides.

We at the OECD are very proud of what we have achieved on this front. You made it possible. We hope you are proud, too.