At the risk of turning this into a travel blog, here I am in Denmark’s parliament building, the Borgen, a treat for aficionados of the TV programme. I spoke yesterday at a hearing organised by the parliament’s fiscal affairs committee on Denmark’s tax treaties with developing countries. The hearing was provoked by ActionAid Denmark’s questioning of the Denmark-Ghana tax treaty, which was ratified recently by the Danish parliament.
The British Public Accounts Committee this was not, and there was some good natured discussion between the different sides. Everyone agreed that businesses prefer there to be more tax treaties in place. The MPs, business and NGO representatives all agreed that there should be more transparency in the negotiation process.
We all agreed that having a treaty might improve the prospect of Danish investment into a developing country. Denmark’s tax minister and the industry representatives all said that a key consideration – perhaps the main consideration – for Danish treaty policy was to help make Danish companies competitive in the markets in which they invest. All of these arguments fell short, in my view, of establishing a clear cut, generalisable and evidence-based case that this is to the benefit of developing countries themselves.
Another point that I took from the discussion was the need to untangle the main things that tax treaties achieve, in a world where the most significant forms of double taxation are generally relieved unilaterally in the absence of an agreement:
- Clarifying definitions, providing dispute resolution, and other technical matters that make double taxation less likely.
- Giving tax authorities the legal basis for cooperation in enforcement matters.
- Offering businesses the reassurance of a credible commitment to fair and ‘civilised’ (not my word) tax treatment in the future.
- Reducing the taxing rights of the developing (ie source) country.
The case that treaties are necessary to provide items 1, 2 and perhaps 3 is strong. There is a (debatable) economic case for reducing source taxation to attract investment, made well by Clive Baxter from Maersk yesterday. But why respond to that case through bilateral treaties, which are harder to alter if the facts change, and which distort the inward investment market by treating investors from different countries differently? Why should the quid pro quo for items 1-3 be item 4? The fallacy, it seems to me, is to conflate the case for cooperation through treaties with the case for lower source taxation.
Here is my presentation. I’ll update this post when the others are all online, but they will only be of use to Danish speakers!
Martin Hearson 