In today’s globalised economy, governments aim to provide an environment — including a fiscal environment — that is attractive to cross-border investors. Governments strive to balance that interest with the need to ensure that such investors pay their fair share of the tax burden associated with funding public services. They also seek to ensure that they are able to enforce effectively their own tax rules.

How to address these twin policy challenges was the subject of two meetings at the OECD in the week of 24 September 2001, in the context of the OECD’s Global Forum on Taxation. These meetings brought together over 200 senior officials from more than 80 economies (OECD Member and non-member economies, including jurisdictions that have made commitments to co-operate with the OECD in addressing harmful fiscal practices), as well as nine international organisations, giving them a near-global character.

Representatives of the business community were involved for part of the discussions.

These meetings are part of an on-going dialogue between OECD and non-OECD economies, covering issues as diverse as taxation and electronic commerce; improving the effectiveness of tax administrations; and consumption taxes. Discussions at the meetings focused on the following areas:

(1) The application of tax treaties and transfer pricing rules

Today, there are over 1500 bilateral tax treaties around the world and they provide the framework for avoiding double taxation and for administrative co-operation between tax authorities to resolve disputes and to exchange information. In the global economy a large share of world trade consists of transfers of goods, intangibles and services within multinational enterprises. Transfer pricing rules are an important tool to determine their tax liability in each jurisdiction.

In two plenary sessions, the first on the attribution of profits to permanent establishments and the second on the recharacterisation of transactions, tax treaty and transfer pricing experts discussed current issues of mutual interest. In a number of parallel sessions, participants discussed specific treaty and transfer pricing issues. On treaty issues, hypothetical case studies were used to examine the practical applications of the permanent establishment concept to contract manufacturing (a type of business operations increasingly found in OECD and non-OECD economies); the treatment of transactions involving trusts under treaties and issues arising in the application of the non-discrimination article in tax treaties. Participants also discussed the recently issued OECD discussion paper on the characterisation of e-commerce transactions under tax treaties.

In the transfer pricing area, participants examined recent trends in transfer pricing legislation and hypothetical case studies on the treatment of intangible property and the application of transaction based profit methods as foreseen in the 1995 OECD Transfer Pricing Guidelines.

(2) Counteracting harmful tax practices:

Competitive forces have encouraged countries to make their tax systems more attractive to investors. In addition to lowering overall tax rates, a competitive environment can promote greater efficiency in government expenditure programs. However, some tax and related practices are anti-competitive and can undercut the gains that tax competition generates. Participants discussed the OECD’s project on harmful tax practices and presented their own experiences with such practices and their efforts to deal with them. Participants were given an opportunity to provide input into the application notes being developed on transfer pricing and rulings, contribute to the dialogue on improving transparency and establishing effective exchange of information and consider ways of associating themselves more closely with this work.

OECD – News release
Paris, 1st October 2001