The report argued that the most important specific field that needs but lacks attention from an international organisation specifically focused on it is not investment, but rather taxation. I quote its discussion of this topic in full:
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The principal area of economic policy where international spillover effects are strong but no international organisation is yet charged with addressing them is taxation (See footnote 1). The tax systems of most countries evolved at a time when trade and capital movements were heavily restricted, so that enterprises operated largely within the borders of one country, and most individuals earned their incomes from activities in their home country. In this environment, the territoriality principle —governments have the right to tax all incomes and activities within their territory—provided an unambiguous rule as to which government was entitled to tax what. The tax policies of other countries were a matter of marginal concern to policymakers. |
| Matters are much less simple in today’s globalised world. For example, under the territoriality principle, income from an investment in a country that is not the investor’s country of residence could legitimately be taxed by either. The distribution of the right to tax the income of a multinational corporation with operations in many different countries depends today upon complex and in some respects arbitrary conventions. The taxes that one country can impose are often constrained by the tax rates of others: this is true of sales taxes on easily transportable goods, of income taxes on mobile factors (in practice, capital and highly qualified personnel), and corporate taxes on activities where the company has a choice of location. Countries are increasingly competing not by tariff policy or devaluing their currencies, but by offering low tax rates and other tax incentives, in a process sometimes called ‘tax degradation’. And tax evasion is greatly aided where capital earns income in a country other than that where the taxpayer resides—a fact that sometimes provides a major motivation for capital flight. |
| All these considerations suggest an important role for an International Tax Organisation (See footnote 2). At the very least, such an organisation could compile statistics, identify trends and problems, present reports, offer technical assistance, and provide a forum for the exchange of ideas and the development of norms for tax policy and tax administration. It could engage in surveillance of tax developments in the same way that the IMF maintains surveillance of macroeconomic policies. Going further, it might engage in negotiations with tax havens to persuade them to desist from harmful tax competition. Similarly, it could take a lead role in restraining the tax competition designed to attract multinationals—competition that, as noted earlier, often results in the lion’s share of the benefits of FDI accruing to the foreign investor. Slightly more ambitiously, an International Tax Organisation (ITO) might develop procedures for arbitration when frictions develop between countries on tax questions. More ambitiously still, it could sponsor a mechanism for multilateral sharing of tax information, like that already in place within the OECD, so as to curb the scope for evasion of taxes on investment income earned abroad. Perhaps most ambitious of all, it might in due course seek to develop and secure international agreement on a formula for the unitary taxation of multinationals. |
| Another task that might fall to an ITO would be the development, negotiation, and operation of international arrangements for the taxation of emigrants. At present most emigrants pay taxes only to their host country, an arrangement that exposes source countries to the risk of economic loss when many of their most able citizens emigrate. The general introduction of arrangements analogous to those in the United States, which requires its nationals to pay U.S. taxes on their world-wide income regardless of where they reside, might be important in turning such a brain drain into a benefit to the source country. Without an ITO to help with enforcement, however, enactment of such legislation by most countries would be an empty gesture. |
| If an ITO were successful in curbing tax evasion and tax competition, there would be two consequences. One would be an increase in the proportion of a given volume of taxes paid by dishonest taxpayers and by mobile factors of production (like capital). Most people would consider this an unambiguous gain. The other would be an increase in tax revenue for a given tax rate. Governments could take advantage of the increased revenue by either increasing public expenditure, improving the fiscal balance, or cutting tax rates. The latitude to increase public spending would be welcomed by some but deplored by others, who may for that reason oppose the proposal. |
The final paragraph tries to anticipate one source of criticism that will certainly be prominent in the United States should this proposal ever attract attention. A significant body of right-wing opinion holds that more tax revenue is bad because it encourages governments to increase their spending and government expenditure is in general harmful (many of those holding this view regard spending on one or two specific things, often defence, as desirable). This view holds that tax competition spearheaded by the United States provides a benefit to other countries because it restrains them from taxing and spending as much as their wasteful socialist proclivities would otherwise incline them. The text acknowledges that the latitude to increase taxes will not be welcomed by all, but makes the point that those holding this view might still welcome the proposal on balance because it would spread the burden of taxation more fairly. One could add that those who wish to limit public spending should do so by arguing their case through the democratic process, rather than seeking to preserve an unfair tax system so as to limit the public goods that can be provided without intolerable pain. Of course, those who take a more positive view of the value of public goods, and income redistribution, would have much more incentive to support creation of an ITO.
Unless, perhaps, they take the view that the world already has enough international organisations. But even if one takes this view, it is not rational to argue that the world should permanently operate with the particular set of international organisations that it happens to have inherited from the past. A more appropriate policy stance is to ask oneself whether every existing institution has as important a role as an ITO would do. Try, for example, to think of anything useful that UNIDO has ever done, and then ask oneself whether it would not make sense to create an ITO even if the price of that were to close down UNIDO so as to prevent any increase in the number of international organizations or the expenditure on them.
| Footnote 1: This is not to suggest that these issues are wholly neglected. The OECD deals with some of the matters that might be suitable for an ITO, but membership in the OECD is restricted. The United Nations and UNCTAD convene occasional expert groups on specific topics. The IMF provides technical assistance in tax administration. | 
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Footnote 2: Perhaps the most specific discussion of what an International Tax Organisation might cover is by Vito Tanzi 
(1999). |
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