Global harmonization of taxation.

• Author: Jones, Lynn Comer

The European Union (EU) was a catalyst for the acceptance of international financial reporting standards (IFRS) in Europe. The EU and the International Organization of Securities Commissions (IOSCO) adopted IFRS in 2002, the U.S. Securities and Exchange Commission (SEC) anticipates IFRS acceptance by 2009, and the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) continue to work toward common standards. Will there be spillover effects of financial accounting harmonization on taxation? Tax globalization efforts include international cooperation, the European Common Consolidated Corporate Tax Base (CCCTB), and U.S. tax reform to meet today's global business environment.

This item begins with a review of nongovernmental organization (NGO) and government tax policy involvement. It then looks at tax globalization efforts. Finally, it considers an international tax organization and harmonization.

NGOs

OECD: The Organisation for Economic Co-operation and Development (OECD) creates international recommendations to promote global economic progress. It is headquartered in Paris and currently includes 30 democratic member countries (see Exhibit 1). The OECD has taken a primary role in circumventing harmful tax practices around the globe by issuing the Model Tax Convention. The Convention is used by the OECD member and nonmember countries as the basis for negotiating, applying, and explaining tax treaties. It is also used to harmonize OECD member countries' tax conventions and to mitigate double taxation.

Exhibit 1: OECD member states Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain Sweden Switzerland Turkey United Kingdom United States In 1998, the OECD issued a report titled "Harmful Tax Competition: An Emerging Global Issue" (www.oecd. org/dataoecd/33/0/1904176.pdf). Harmful tax competition thwarts free trade and investment; it usually manifests itself as a special tax incentive. The report's major objective was to change the Model Tax Convention. Now, under the Convention, a country cannot refuse to provide information that is unnecessary for its own tax purposes and cannot use bank secrecy laws to justify its failure to provide information.

The OECD has some weaknesses. Since its recommendations are not legally enforceable, success hinges on voluntary participation and/or legal enforcement by other organizations (e.g., the World Trade Organization). Subsequent to the 1998 report, the OECD's lack of representation for developing countries (countries with a low standard of living and gross domestic product) has been under attack.

The 1998 report noted that the key characteristic of harmful tax competition is the lack of effective information exchange--timely availability (via legal means) of reliable information. The OECD created the Tax Information Exchange Agreement (TIEA) model to continue addressing the effective exchange of tax information. The TIEA applies to tax information for income, capital, inheritance, estate, or gift taxes and under the agreement, the information is exchanged only on request.

In 2000, the OECD identified tax havens around the world, describing them as "non-cooperative countries and territories" and demanding that they sign letters of commitment ending harmful tax practices. The commitment letter required each jurisdiction to fulfill transparency disclosure requirements. The OECD perceives a transparent tax system as one that applies laws on a consistent basis among similar taxpayers and has information in place for taxing authorities to...