Africa: High Income Democracies Seek New Relations

| December 24, 2012 | 0 Comments

From his office in the western district of Paris, Angel Gurria – secretary-general of the OECD – sees a new relationship emerging between the 34-member club of high-income democracies and the developing world.

With Colombia, Costa Rica and Latvia all asking to join, and an enhanced engagement programme with Brazil, China, India, South Africa and Indonesia, the institution is becoming a global actor. The division between its members and stakeholders is blurring.

For Mr Gurria, the OECD has a concrete contribution to make to the development trajectories of emerging economies; nowhere more so than in setting out best practice for how multinational companies do business in emerging markets. With allegations of tax avoidance in Zambia’s mining sector, and a run of bribery accusations in Latin America, codes of conduct are sorely needed.

Multinationals engaging in wrongdoings have “nowhere to hide”, he argues. While tax havens for the rich have taken much flak, the temperature has cooled, Mr Gurria says, “because now there is a mechanism. More and more people are discovering that, whether it is the Cayman Islands or China or Mexico or Turkey, if you ask them, they give you the tax information. That didn’t happen before. Some are moving to automatically give you information, which is even better.”

Then, there is transfer pricing, which has become the “hottest political issue”. When subsidiaries of multinational companies’ sell products or services to one another at prices that differ from market prices, income can be shifted to low tax countries. “It is very specific, very technical. It doesn’t sound grand, but it’s a Willy Sutton story. That’s where the money is!”

Key to resolving these disputes are international guidelines, and here the OECD is front and centre. Its tax guidelines (which are not legally binding) stipulate that MNC subsidiaries should maintain an ‘arm’s length’ approach to internal pricing, meaning trade should be priced as it would in a market transaction. But one of the most complicated areas is charging for goods which do not have a market as such, for example the use of logos. Moreover, certain fees can be shrouded in mystery; notoriously, ‘management consultancy’.

For years, the OECD made modest progress in tax affairs, Mr Gurria explains, but that is changing. “Support from the G20 was absolutely critical. Without the G20 we had been trying for 20 years. Now 111 countries [most recently, Pakistan] are working in the Global Forum on Tax Transparency exchanging information, signing hundreds of agreements with each other, and checking that every one of them complies and delivers the information on request. We’re now moving closer to the automatic exchange of information.”

But not everyone is happy about the OECD’s role here. Its tax haven model, while an improvement, still requires that external parties know who a suspected tax cheat is and what they have done, to compel the tax haven to respond, which weakens the power of the rules. Automatic information exchange should be the emerging global standard, says the Tax Justice Network, a watchdog.

Some countries complain about the OECD’s self-appointed governorship in cross-border tax models. India is unhappy, with its representative to the UN describing a tax standard on international transactions set by a 34-member club as “inconceivable…particularly when it only takes care of the interests of developed countries”.

The G77 wants a currently small, rather toothless UN tax committee to be upgraded to an intergovernmental commission, which the EU and OECD have opposed. The UN model would, among other differences, grant more taxing rights to ‘source countries’ (i.e. where income has its source) than ‘residence countries’ as compared to the OECD model.

But Mr Gurria defends the locale. “Why is it happening here?” he asks. “Well, because this is where it happens!” Apologising for the tautology, he refers to the road already travelled. “This is where we have been doing it for many years. There are probably a few thousand, if not more, agreements about taxes and protection of investment and tax regimes that have been signed following the OECD model. This is where it is happening all the time. If somebody else, like the UN, would like to develop further their capabilities, we’d be delighted to help them.”

The OECD can play a role in Africa specifically. South Africa has observer status in the work of the OECD’s Committee of Fiscal Affairs (CFA), helping the South Africa Revenue Service (SARS) review and benchmark its own systems and strategies, which in turn percolate to other African revenue authorities through their participation in the African Tax Administration Forum.

OECD investment in training conventions for tax administrators in Africa is proving key to building information exchange forums and systems, and providing international best practice on the optimum tax information protocols. The OECD is also facilitating dialogue through the provision of technical input and diagnostic studies, working on transfer pricing with tax officials from the likes of Uganda, Ghana, Sierra Leone, Cameroon, Morocco and Senegal.

Bribery is a second pertinent area – a growing challenge as the result of ever-increasing flows of capital around the world, and especially into emerging markets. “We have never been so requested on anti-corruption issues!” exclaims Mr Gurria. Here, OECD rules have real bite. Its 1996 Anti-Bribery Convention has been signed and ratified by parliaments around the world, becoming a “source of extraordinary leverage in order to fight cross-border corruption”.

Tackling bribery is not just about high-level declarations and legislation. It is also about “having good governance and decision-making systems which are transparent and open, which avoid the opportunities [for bribery]”, Mr Gurria says.

He notes that the OECD contribution extends to public procurement processes, to lobbying, to conflicts of interest and “all the licensing issues, the permits, all the things that make corruption entrenched. And we do it from experience. We do it from gathering the best practices to fight those things.”


The OECD is not just focused on international commercial interaction. It also has an explicit development mandate. And its motto – better policies for better lives – may have no better example than the Millenium Development Goals, a landmark initiative developed by its aid ministers, which became a worldwide standard for how governments, donors and even companies operate.

Mr Gurria is quick to clarify the OECD’s role as a catalyst, rather than manager, of the initiative. “Yes we were the source of this great initiative. It was an excellent idea to try to quantify, to try to target, but it would not have been as effective had it not been socialised and got the political support and then become a worldwide initiative. This is how we serve: proposing, elaborating and arming, putting together the pieces and saying ‘this is what could work’, and letting the political leaders run with it.”

No continent has benefitted more from the MDGs than Africa. But what are Mr Gurria’s views about Africa’s prospects in the longer-term? Mr Gurria – following Pascal Lamy’s now famous quote – describes himself as neither optimist or pessimist but “activist”. He is sure that major change is afoot. “We see these countries are responsive, we see they are willing, they are demanding. What used to be – where you had all these leaders that were there forever – now what is happening is the opposite. The people, a young generation more informed with their tweeters and their Facebooks and their computers and their internets, are saying ‘Let’s move on to something better’, because they know that it is possible.

“What we are doing is what we’ve done with every one of our members over 50 years – helping them in that transition. Many of our members were poor 50 years ago, they were coming out of a war, they were hungry. We helped them along, and we roll with the punches and we try to change with the demands and the needs. This is what we are trying to do for Africa.”

Culled from :Here

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