OECD: Stuck In The Middle With You

Blog post only

Last week, I described the OECD’s position as “Shot By Both Sides” (https://taxleonard.wordpress.com/2024/02/09/oecd-shot-by-both-sides/). This referred to OECD’s work being under vehement attacks from both Republicans in the US and some developing countries and tax activists. A casual observer might think that these attackers have much in common, but I tried to show that they actually opposite things in tax policy terms.

The OECD typically pushes back on these criticisms as unfair. As an international organisation aiming for consensus, they have to balance different perspectives and develop solutions that offer something both to countries that want to protect their MNEs from overseas tax and to countries that seek to increase source-based taxation. From that perspective, the attacks from both sides are too ideological and do not offer a feasible long-term way forward.

Obviously, the OECD is not perfect, critics sometimes have a point and sometimes the OECD could make changes that would make it less vulnerable for criticism, increase buy-in and therefore could make it more effective. On substantive issues that can be difficult as there are sensitive political tradeoffs, but on process point, that doesn’t need to be all that difficult.

But no matter how you cut it, international tax rules set at OECD have an important impact, because they feed into how double tax treaties are interpreted, how countries organize their domestic laws and how countries think about international tax. Some MNEs, their tax teams and tax advisers may feel sympathy for the OECD critics, but that doesn’t help them much on a day-to-day basis. Their tax consequences are likely to still depend on OECD brokered outcomes, at least in the short term.

So, in short, the OECD can describe its position as follows: “clowns to the left, jokers to the right, here I am, stuck in the middle with you” (https://open.spotify.com/track/3Vby4nGmtbDo7HDJamOWkT?si=4e09c87c39754706). And I wonder what it is they should do.

Obvious disclaimers: this is not advice. These views are my own and do not necessarily represent my employer.