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February 3, 2014
Conversations: Jeffrey Owens and Michael Lennard
by Jeffrey Owens

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Jeffrey Owens and Michael LennardJeffrey Owens, director of the WU Global Tax Policy Centre at the Institute for Austrian and International Tax Law (Vienna University of Economics and Business), has created a new series of Fireside Chats with people in the tax world who influence the way we approach tax policy and administration. Owens is the former head of the Centre for Tax Policy and Administration at the OECD.

In this installment, Owens speaks with Michael Lennard about his work on the U.N. tax committee. Lennard joined the U.N. in 2006 as the chief of international tax cooperation in the Financing for Development Office. Since then, he has overseen the development of the U.N. model double tax treaty and worked extensively on the U.N. Practical Manual on Transfer Pricing for Developing Countries.

The full interview can be seen at

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Jeffrey Owens: Michael, I'm very pleased you're able to accept the invitation to join me to discuss the wide world of tax today.

Michael Lennard: Thanks, Jeffrey, and it's a privilege to be here. I'll speak in my personal capacity today, which means that I am not necessarily speaking for the U.N. tax committee or the U.N. -- but I'll speak on what I believe the thinking is as I see it from my position in the Secretariat. The second thing -- which we'll explore later more closely -- is that I've been very lucky while I've been involved with the U.N. tax work in that we've had a very good committee which has had some very good people on it and which has had the willingness to go beyond just the traditional look at double taxation. That's something that will come out in the discussion, and it's a reason why I've been lucky to be involved when things could happen.

So what does the U.N. do in the area of tax? The U.N. tax cooperation work occurs in a very small unit within the Financing for Development Office of the U.N. Department of Economic and Social Affairs. Really, the mandate of that work is driven by something called the Economic and Social Council. The mandate derives from the importance of what is called "financing for development." Development is important, but it needs to be financed somehow, and those of us who are working in tax know that tax is a very important way of attaining such funding.

So really, our role is to assist developing countries in that aspect of financing their development, and that means, first of all, that they need to get money into the revenue authority. They are sovereign as to how they do that, but we can give guidance as to what may work, or may not work, in their particular circumstances. Secondly, investment is very important, so having an inviting investment climate is important for the development of countries, and getting the right tax mix is an important part of that.

Owens: Of course, we have the World Bank Doing Business indicators, which I think you and I would agree are not very helpful?

Lennard: Well, I think -- without commenting particularly on those indicators -- that certainly, any sort of score sheet can be misused, and people may do things (or indeed, not do things) to get further up the table. And those things are not always things that in the long run will suit them. A second thing is the countries that really might be trying to do the right thing but have slightly more complex tax systems, which means their obligations on taxpayers are a little bit more complex and will push them further down the ranking than perhaps they should be.

Owens: A very diplomatic answer, Michael.

Lennard: Not a specific answer about our friends in the World Bank, but a comment on those sorts of issues. The third aspect of our mandate is that developing countries need to have a role in setting the standards. This is very topical at the moment, when we're talking about what the standards, particularly for multinationals, should be internationally.

We need to make sure developing countries play more of a role in setting those standards -- standards that will work for them. And finally, on how the U.N. tax work is set up, we in the Secretariat take a lot of our direction from the U.N. tax committee, the Committee of Experts on International Cooperation in Tax Matters. That's a 25-person group which acts in an advisory capacity, chosen by the secretary-general of the United Nations after nominations by countries. It's a group that is intended to be representative of the regions, of different tax approaches, and to have sufficient gender balance. It's meant to be a group which epitomizes the 193 countries of the U.N., while recognizing that you can't have 193 people around the room dealing effectively on a complex issue such as tax.

Owens: What does that mean, the fact that it's a group of experts -- doesn't that sort of undermine the recommendations that they make? What is the status of the recommendations that come out of the group?

Lennard: It doesn't really undermine them; it just means that the force of the recommendations comes from the strength of the underpinning argument. I think what you are alluding to is the long debate about whether the committee of experts should be an intergovernmental body, rather than people nominated by governments but chosen to act personally, and that's a debate which is still unfinished. Generally, the G-77 plus China, which is actually about 132 countries now, has been supportive of the committee becoming an intergovernmental body. This, arguably, would give it more authority, as speaking for governments, but not inherently because it still wouldn't make binding decisions.

My personal view is that such an upgrade eventually will happen, and one of the biggest arguments for it is that the OECD, which functions very effectively for its members in the tax world, is an intergovernmental body. Also, as the committee is looking more broadly than just at double tax treaties, there's no one person -- not even yourself, Jeffrey -- who's an expert on all the different subjects which will be covered. If it was intergovernmental, you would have a country that would be the member, and to the extent that resources allowed, they could put into position in a meeting the person who was expert in that area. So that is an issue, a debate which I hope doesn't go away, and as I say, my personal view is that eventually this change will happen. But that is a very personal view, really; the issue has to be decided at much higher levels than me.

Owens: I think the key thing is not so much the status of the committee; it's getting adequate resources for the committee and then being able to parallel all of the agenda of the CFA. But that's where you should move forward; you have a group looking at treaties, you have a group on transfer pricing, and you have a group on each of the expert areas where developing countries have a specific interest, so you pull in the people that are actually working in these areas.

Let's move to the second round of topics. What are, from your perspective, some of the priority issues that the committee is looking at in the area of tax treaties? Things on the cross-border services, what do you do if you have to identify two or three issues to cover today?

Lennard: I think, without choosing a favorite between one's children, there are a few which really stand out as important issues. One is the treatment of services. The treatment of services is very different in the U.N. model than it is in the OECD model. There is quite a traumatic debate in the OECD on the services PE: Do you follow the same rules in determining whether you have a permanent establishment, i.e., whether there's sufficient economic connection with the country for the source country to tax you. And the outcome there of that discussion was a minority approach -- having some different rules for services PEs -- which is very similar to the U.N. majority approach. And you might think that shows a coalescing of the U.N. and OECD models, but I think the fact that in the U.N. there's a clear majority in favor of treating services, permanent establishments, as having been achieved a little bit more easily than goods permanent establishments -- and that's a minority, very much a minority, in the OECD -- I think that is a very significant difference.

Owens: On that one, does the committee often split with OECD members on the one side and non-OECD on the other side? Or is it a mix?

Lennard: I think statistically there are often views which are more predominant amongst people from OECD countries. I say "from" not "representing" because they act in their personal capacity. But it's not always that way, and I sometimes get a little bit annoyed when people look at where our members come from and say, "Well, they will always take the position of favouring residence-country taxation," which in our experience is not actually the way things pan out. I think the members have tried to look at these things in a way that recognizes the importance of what they are doing for developing countries -- that it's not just about their own country. In any case, in the OECD, there are some countries which are more source country-oriented than residence country-oriented. That is more the big divide. It really comes down to how much the source country needs to give up in a tax treaty negotiation, and on that, the fees for technical services issue is another differentiation from the OECD model. The committee has decided that the U.N. model will have a provision for countries on fees for technical services. I think that's a really good decision.

Owens: You've started that work, have you?

Lennard: It's been in gestation for a while, and there's a draft of alternative provisions, which Brian Arnold,1 a well-respected Canadian professor who has been working with Liselott Kana2 from Chile, has proposed, and [in 2014] they are to provide a full article with commentary on that draft. That will be quite difficult because how do you differentiate these technical services -- which services receive a special treatment, which are advantageous to the country from where they're paid? That's a very important issue, and to me, the relevance is that it's a recognition that a lot of developing countries want these provisions.

I can predict this part of the outcome -- that the choice is yours as to whether you have a fees for technical services provision. There are some pros and some cons, and one of the cons will be the difficulty of defining exactly which services are covered so that you don't discourage the right sort of services coming into your country. But such clauses are already out there, and I think the U.N. can play a good role, including for business, of steering the countries that want to have a fees for technical services article down one or two roads, rather than 50 roads or so that currently exist. That's a very big issue. Another big issue is redrafting the commentary on article 9, the arm's-length principle. But the arm's-length principle is not in play in the redraft.

Owens: We're sure of that?

Lennard: Well, one can never be entirely sure. I mean, even the OECD BEPS action plan suggests that sometimes the arm's-length principle might even have to be departed from. But the work is actually changing the commentary on article 9 -- bringing it up to date, reflecting some of the issues identified in the 2013 manual. On some of those issues, there is a feeling among some committee members that article 9 actually paid a bit too much deference to the OECD transfer pricing guidelines. They're very well-respected guidelines, but there was some concern, for example, that the previous wording of the U.N. model convention sort of suggested that countries should follow them automatically, which would imply even when they changed. Some members felt that we really don't want to give a blank check to the OECD, and as I said earlier, we will pick them up to the extent that they're good for developing countries through the filtering mechanism we always apply: What does it mean for developing countries? Those are, perhaps, two of the big issues, specifically on double tax treaties. Other areas of work will cover some areas of double taxation.

Owens: Do you think there could be some scope for convergence on the key issues generally in the OECD -- or call them the advanced economies -- and those in the less-advanced economies?

Lennard: One of the other treaty issues, which is a big one in the U.N. at the moment, is the amount of physical presence required under the permanent establishment article, and even within the U.N. -- and remembering that OECD countries are also U.N. countries -- I think there's a lot of philosophical division about what the test of physical presence should be.

So it will depend, but even among some OECD countries, there is concern -- in the digital economy particularly -- that some countries are not getting the source taxation rights that they should. Maybe to some extent there will be convergence in that area, but it really depends on what happens with the OECD model. I think there'll always be a tendency in the OECD model to be more residence country-based; there'll always be a strong tendency in the U.N. model for the source country to give up less taxation rights in a double tax agreement.

Owens: Do you think we'll eventually reach a situation where we no longer have a U.N. model and an OECD model, but we have one model which is broadly endorsed by the international community and which allows countries to set out their positions. Are we not far from that already? Volume II of the model convention enables OECD countries to make observations on the commentary and reservations on the article, while non-OECD countries may set out their positions on either. Wouldn't that be a more productive way to move forward? It doesn't have to be a yellow or blue publication; it could be red!

Lennard: Philosophically, yes, because really, both models are seeking to say there are options, these are the options, and each of the options has pros and cons. If, for example, you have very high withholding taxes on intellectual property, you might not have the intellectual property coming into the country, and you may not actually get any money because it doesn't come in. But on the other hand, if you set it too low, you may not be getting the economic benefits that you need to achieve sustainable development and for assisting your poor and so forth. So philosophically, I agree; the issue, though, is the member countries are so very different that different issues will be relevant at any particular point in time. The fees for technical services article, that's not a high priority for the OECD, so there's no work being done on that. Other issues -- some of the issues that the OECD at the moment is doing for its 2014 update -- are probably not such high priorities for the different membership of the U.N. I think we should try to minimize the differences, and I think the committee and the Secretariat have been very sensible in saying, with their limited resources, we shouldn't unnecessarily redo what the OECD has done well. But we need to assess what it means for developing countries, and sometimes we have to go out a little bit ahead. We actually did that on climate change and even on transfer pricing. I think we have actually influenced the way the OECD has looked at this.

Just as a final example of where I think the outcomes might be different -- and this is, I think, a big issue for international tax policy at the moment -- you might have a complex solution to an accepted problem that works in the OECD member context, but it might not work in the developing country context. An example of a complex approach is probably the new OECD article 7, the authorized OECD approach. I think even a lot of OECD countries find that too complex and are not pushing for it. I think that's a classic example of something where even if it works for OECD countries, it's less likely to work for developing countries because of their stretched resources and other realities. We always have a risk, both in the OECD and in the U.N., that we'll pursue something which is intellectually interesting but is not really that relevant, particularly for developing countries where they're often dealing with some really basic issues at this stage of their development.

Owens: That's what I've seen when I worked at the OECD: There's always a danger that the treaty negotiators get put in a box, and they lose the connection with the domestic tax legislation and fail to see what are the practical limitations on what will or will not work. At the end, your treaty should reflect what you are doing on the domestic side, or at least the treaty should not put constraints on what you want to do if you think it's good tax policy.

Why don't we move on and talk about transfer pricing, because I think the work that you initiated of having the U.N. draw up a manual for the application of the arm's-length principle was a very good example of how you were breaking out of the treaty box. You were wading into an area that was highly topical, highly controversial, highly political. Were you pleased with the outcome from the report?

Lennard: I'm very pleased with the outcome because at one stage it looked as though there might not be an outcome. It's an imperfect document; as it says itself, this is the transfer pricing manual, which is a practical manual for developing countries, which has just come out in hard copy. It's available on the U.N. website free of charge, or you can buy printed copies at the U.N. bookshop. I think it's a really important document in a lot of ways. A lot of the importance is in saying, "We the tax committee recognize that transfer pricing is an issue for a lot of developing countries -- not necessarily all, but for a lot of developing countries." So it's meeting a need. Initially, most of the people on the committee were not transfer pricing people; they could have said, "No, let's leave that to others." But they used the subcommittee system, and that system is essential, as the tax committee can only meet five days a year and makes all its decisions for the year.

Owens: Is that a budget issue, that they can only meet five days?

Lennard: No, it's constitutional. That means it has to rely on subcommittees, and fortunately, we had a very good subcommittee on transfer pricing -- a huge subcommittee, as large as the committee: over 20. It was very ably led by Stig Sollund3 of Norway, and they had very vigorous debates about things like comparability. We had the competent authority from India, we had a very well-respected expert from the United States, and other people, including people that you work with, involved in it. In the end, most of the differences could be dealt with in a way that was still helping developing countries, because a lot of the really technical issues are not big issues for developing countries who are just starting on the issue of transfer pricing.

Owens: You've got to look at the issue of safe harbors, because you keep emphasizing the low capacity of a typical developing country -- surely, safe harbors are one way in which you can help them?

Lennard: Safe harbors are -- and I give you credit, Jeffrey; you were involved in the OECD work and I think you recognized quite early on that the traditional OECD approach of saying, "Safe harbors are contrary to the arm's-length principle, let's not encourage them," really wasn't realistic for developing countries. I could never see why something that was at the option of taxpayers could be contrary to the arm's-length principle.

But I think that to some extent, simultaneously, approaches in the U.N. and the OECD are becoming more pragmatic, not throwing everything up in the air, as you need sufficient certainty for business but also for administrators, so they can learn from each other. But you do need to be a bit more pragmatic. There is something in the manual about safe harbors; personally, I'd like to see something more in the next version. It's not specifically listed on the things to be in the next version, but it could be because it's very relevant. Again, transfer pricing is a journey, and I think we've got out of the mind-set that you have to have the perfect transfer pricing setup when you first get into transfer pricing. There are the issues of advance pricing agreements or arrangements. For a lot of developing countries, I think the answer might be in the long run, they're very good, they give certainty to taxpayers, you learn from the process. But I think for a lot of developing countries, they've reached the conclusion that the best resources are not spent on having the best and brightest working on taxpayers who are likely to be basically compliant. They should instead go after the low-hanging fruit of the clear noncompliers. Different countries have different views on that, but that's a related issue.

Owens: It depends on how important your multinationals are for you. As you say, the great thing about APAs is, they're a very effective way of training your tax auditors in a particular sector. Once you've done one pharmaceutical company, you can move on and do the rest. One of the interesting things you keep emphasizing is that we seem to be moving away from making transfer pricing a polarized debate.

You're either in the camp of "it's all arm's length" or you're in the other camp of "it's all global formulary apportionment." And the reality is that those days have gone. As soon as the OECD, in 1995, endorsed profit-based methods, you're basically on a spectrum. The whole debate that's going on at the moment at the OECD and in the U.N. is "Where do you want to be on that spectrum?" But as soon as the 1995 decision happened, elements of formulary apportionment are being built in, and I think it's positive that both the manual and the latest work coming out of the OECD are recognized in that. So it becomes a much more pragmatic approach.

Lennard: This is a classic dilemma in this area, because some people will say, "No, this is terrible; we need certainty." My response always is -- and you've probably heard it before -- that everyone wants one rule, but then you speak to them, and you might want to drive on the left-hand side of the road or the right-hand, and you're not always going to get absolute agreement. So what's the answer? It is to minimize the frictions at the border. This is relevant, I think, to a lot of the ongoing discussions at the moment. Do you pretend you've got agreement when you haven't and know that in effect, it's not going to be implemented because you ultimately can't force countries to do what they don't believe in?

Owens: I tried for a number of years!

Lennard: I don't have your moral force, obviously. Or do you just recognize that, and try to limit the areas of difference and make clear the pros and cons of taking a particular path -- including that if you take a divergent path, you are losing the benefits of consistency, which is an attractive thing for investment that's been lost? I always believe that developing-country administrators benefit if they're following the same rules as other countries in the region because they can learn from each other. But my general take on that debate is that -- and all these views are personal -- that I don't think we're going to have an agreed global formulary apportionment in my lifetime. There are a lot of reasons for that, but the main reason is that I don't think you could get an agreement that suited every country in the world. Even if you appear to have an agreement, there will be winners and losers. The losers would probably be more likely to be developing countries than developed ones. So that's an issue. The other issue that people forget about when they look at its operation in the U.S. states (and some people say it is wonderful; some people say it is terrible) is the role of the Multistate Tax Commission, which is intended to reap some of the benefits of formulary apportionment by helping essentially the smaller states, as I see it, so that they don't have to redo all the calculations about the global income and so forth.

People often overlook the fact that we won't have that same body at the international level, so developing countries won't have the benefit of an overviewing body that helps with determining a proper apportionment. I think there are some issues with formulary apportionment, then, but the debate has been very helpful, because I think it has focused on exactly what you have said -- that a lot of the things in formulary apportionment, a lot of the analysis essentially of where value is created, have broader relevance. In particular, a lot of those considerations really already come into transfer pricing, they come into the way that profit splits are done, they even come into where you have joint audits. People who are involved in joint audits have said to me, these factors are effectively relevant. I agree. I think once we get away from the philosophical purism of either arm's length or of global formulary apportionment -- and I'm glad a lot of the proponents of formulary apportionment are now talking about it as a unitary tax and are getting away from the "global" reference, which is probably a branding mistake -- I honestly believe that the more we integrate those ideas, then the more chance we have of something that is reasonably certain, not perfectly certain -- it will never be perfectly certain -- but that is pragmatic and works reasonably well for both developed and developing countries, sort of like democracy.

Owens: I think the link to this is the whole question of country-by-country reporting and the documentation standards that you require for transfer pricing. The OECD had a big meeting where they talked about developing a "master file" and a "local file" for transfer pricing. That's all going to help developing countries because it will enable somebody sitting in Zambia or in Senegal to get a global picture of how that multinational operates -- not just within their countries, but on a global basis.

Lennard: Potentially. There are a few wrinkles which came out in the discussion in Paris, and I don't want to be negative. I think it's a very good development. One issue is that even if you know what they've earned in each country, it doesn't necessarily tell you much about the links between the entities in the different countries and how they deal with each other, which is relevant to transfer pricing. More importantly, I think there is an issue about whether developing countries will reap sufficient benefit from this.

Owens: Is the U.N. broadly supportive of country-by-country reporting?

Lennard: The U.N. -- that is, the committee -- hasn't actually formulated a view on this. I think it would be broadly supportive, but particularly at the moment, one of the big issues is the confidentiality, and it seems to be coalescing around the view that the report is made available to tax authorities, and not the broader public. Now, that will draw criticism from the NGOs, who have largely driven the debate, that it shouldn't be left to government. I won't comment on that debate, which is an intricate one. One of the other issues is that the data would go to the "mother country" of the MNC, as I understand it under the current proposals. Then, using treaty networks, it would be made available to other countries, so long as the mother country is satisfied that the confidentiality requirements are met. Now, there is a genuine issue about making sure that confidential information remains confidential. My concerns in this area are that the lack of treaty networks doesn't disadvantage developing countries; and secondly, that where the information is truly confidential in that country, such a confidentiality aspect is not used as a way of not giving information to a country because of other issues.

Owens: There must be a spectrum to which this confidentiality argument applies, though, surely? I could see why some companies might be concerned about some data elements being made public, but surely there are things like whether you have holding companies in a country, how much tax you pay in a country, how much profits -- why should that be confidential?

Lennard: I think there's a good debate about whether the confidentiality requirement is being used as a way of limiting access to information which shouldn't be confidential and which might assist tax authorities. I think a lot of the information should perhaps not be confidential, and there has to be a clearer differentiation between what's confidential and what's not. I have a concern that the confidentiality requirement will be used to keep information unavailable to the authorities that should have it to help them do their work. So I guess it depends on what information is available. This is behind the NGOs saying it should be made public.

Owens: Do you think, in fact, that for a very underdeveloped country with a weak tax administration, maybe part of the answer is just to outsource transfer pricing, give it to one of the Big Four, and say, "Fine, off you go"?

Lennard: Customs authorities typically do a lot of outsourcing already, so maybe that will happen over time. I think for a lot of developing countries, transfer pricing shouldn't be seen as a panacea, and this is another thing that I'm a little bit concerned about: There is so much concentration on transfer pricing instead of the other problems experienced by less-developed countries -- about just knowing their taxpayer base and dealing with the non-transfer-pricing issues, dealing with the numbers of potential taxpayers who are not in the system, and so forth. They also need to make sure that the so-called tax morale, that there is an incentive to pay tax because you actually believe it is being used to develop the country. Or at least that there is an incentive to pay tax amongst people who are disposed to pay tax. But that's certainly food for thought as one alternative.

Owens: Let me be devil's advocate for a second. In some ways, you could say the OECD has perhaps done a disservice to the developing countries because we've pushed so much on the tax treaty aspects, exchange of information, transfer pricing, and so on. In a typical developing country, the first priority is to get your tax administration working. Because without that, you can have whatever international arrangements you want, but you're not going to be able to do transfer pricing properly; you're not going to be able to exchange and use information. In a sense, working on transfer pricing is far sexier than doing tax audits of SMEs, so there's a real danger that the brightest and the best actually get diverted to these international issues, rather than focusing on the bread and butter.

Lennard: I'll just mention something that you'll probably remember: There was a very good report4 to the G-20 from the OECD, the U.N., the World Bank, the IMF, and some regional bodies, which was actually about how the G-20 could help developing countries have effective tax systems. I thought it was a really good report, but not much happened with it, unfortunately.

Owens: It was ignored.

Lennard: But it was a report that emphasized a lot of those issues, and actually, it was surprising. Maybe I was wrong to be surprised that all those bodies could work on something which suggested, for example, that developed countries should take more responsibility for their MNCs paying their taxes in other countries. I think one of the big problems in the world at the moment is that countries are very clearly against tax avoidance in their own country, but the spillover effects in other countries don't necessarily concern them as much. So again, it was a good report which deserves reading because it said you should do spillover analyses of your legislation to define what it means for other countries. I think even in the Netherlands, they're starting to think about the effects of their system on developing countries. I think that's a good development, and I think it was a very good report.

Owens: I do remember this report; it was done by the organizations that formed the International Tax Dialogue, it was put to the Cannes G-20 summit, and it is probably fair to say it wasn't the center of the debate. I think it will come back because there are some good ideas there.

Why don't we move to the fourth topic, which is the exchange of information? On this topic, in a sense, there has been a revolution. There's no other way of describing it. There are very few finance ministers today that get up and say, "We favor bank secrecy as a shield behind which tax evaders can hide." I didn't say every, just very few, so there has been a whole change of attitude there. How have developing countries benefited from this?

Lennard: It's really hard to tell on the ground. I always have a reserve on the exchange of information because we really have to wait until developing countries are seeking more information from developed countries to find out how readily and how quickly it comes. There are a few wrinkles in this area as well. One is the lack of treaty relationships. Now you might say, well, if you can't get a double tax agreement, usually because the developed country doesn't at that stage want to negotiate one with you, you should have just a narrow exchange of information agreement. That's one possibility, but on the other hand, you might be giving away one of your good bargaining chips in eventually getting a comprehensive double tax agreement. It's a difficult area.

Owens: If you're dealing with an offshore financial center that doesn't have a real tax system, the last thing you want to do is to give them a treaty. But one of the negative side effects of the work we did at the OECD is that we might actually have helped countries that didn't have very sophisticated tax systems to become more effective tax havens because they developed a treaty network. That's something that wasn't quite intended.

Lennard: Yes, and the amount of information exchanged under exchange of information agreements is a bit narrower than what you might call the "international standard" -- which itself seems to be changing all the time, however.

Owens: That's a nice introduction of the next question I wanted to ask you on the automatic exchange of information. We haven't bedded down the on-demand request process, and now, suddenly, we're all talking about automatic exchange being the new normal. What are your views on this?

Lennard: I think basically it's a positive development because it's often hard to know what to ask for on request. But again, it will depend on how it operates in practice when a small developing country goes to a big developed country and says, "Look, I need this information." There will be issues about whether it comes in at all, whether it comes in with sufficient speed, and also, there are issues about whether the information can be integrated into the systems of the requesting tax authority.

When I was in Australia, we used to get information from another OECD country and we really couldn't make much sense of it because of the format. So there are some issues there. The other thing is that there's some concern amongst some developing countries that they might get more of the burden and less of the benefit. That could be particularly true if they put in requests and they weren't met, or if they get a stream of requests and they have to use some of their best people to deal with that, rather than to go out and audit the noncompliant taxpayers.

So it's a balance. I think it's a positive development, but there needs to be some heed to the administrative impact on developing countries. In our U.N. model, article 26, we give a little bit more mention of that than the OECD, particularly on the fact that the developed country may have to assist, essentially financially, in getting some of this done. But it's a good development because it also emphasizes double tax treaties are not just about avoiding double taxation; they are also about dealing with tax avoidance and evasion.

Owens: I think that's one positive outcome from the BEPS work -- that in fact we're getting more of a balanced approach in terms of avoiding double taxation and avoiding double nontaxation. But do you think, in fact, that the large OECD countries are going to be prepared to automatically exchange information with less-developed countries that perhaps do not have a culture of protecting confidentiality?

Lennard: I don't know. I wouldn't like them to jump to that conclusion. As I said earlier, I wouldn't like that to be used as an excuse where there genuinely are sufficient levels of confidentiality. Confidentiality on the things that need to be confidential is important, as we've both mentioned. My hope is if that happens, it happens only on genuine grounds and that there's assistance to those countries in helping them get up to standard because, I think, too often in the past, we've said that we put an imposition upon developing countries, but we haven't done enough to actually help them meet the standard. I think things have improved in that area. I think the OECD does more work in helping countries meet those standards.

Owens: What about this new development of the multilateral convention?5 We worked a lot at the OECD to get this convention up and running, it was ahead of its time, it got the support of the G-20, and the standard was brought up to date on the bank secrecy issue. Now, you have 61 countries that have signed it. Is this something that you will recommend that developing countries should get involved in? There are already some signed up to it.

Lennard: I certainly think they should look at it. I wouldn't recommend one way or the other because it depends on their particular situation. I think it's a good development to "multilateralize" some of these issues. I've always felt that there should be more multilateral attempts on double taxation treaties.

I've always wondered if the reason it doesn't happen is because negotiators like to travel to exotic countries! Speaking as a former negotiator, although I did most of the work at home, I've often wondered if that has an impact. Perhaps that's a little bit cynical, but in principle, I think some of these areas do need to be multilateralized.

When you look at the surrounding documents of that convention, really, the OECD is the body for all opinions in relation to it, which, in a sense, I'm not sure the U.N. could do at the moment, so I'm not necessarily saying that the U.N. should have a similar role to play. That was essentially an OECD-Council of Europe convention, which was then made broader. I think, in the future, we have to think in a more thorough way; if we have a multilateral approach, how do we have one which says you're equal at the table, and the body that looks after it is one of which you are a party, a member, and so forth? But that's not a criticism; it's a positive step, and it's up to countries. Again, by signing up to that, they may lose a little bit of leverage on a bilateral double tax agreement, but that's a decision for them to take. It's a way of dealing with a lack of specific treaties on exchange of information.

Owens: I think that's a nice way to go into the fifth point, which is on BEPS. You can't talk about tax these days without mentioning BEPS. How are the views of developing countries going to be fed into the BEPS debate, and what role does the U.N. play here?

Lennard: It's an OECD/G-20 agenda, and we're supportive of any action against base erosion and profit shifting. I guess the point I would make is that concern about base erosion wasn't invented by the OECD; the U.N. tax committee has always been concerned about base erosion and profit shifting. The best answer to what you've said is to mention the mandate of the new U.N. subcommittee that's been set up on base erosion and profit shifting.

Owens: Who is going to chair that group, may I ask?

Lennard: It's a tax official named Carmel Peters6 from New Zealand but acting in her personal capacity, I should say. It will only be members from government that make up the subcommittee.

Owens: So it's not the same composition as the full committee, where you have business and NGOs?

Lennard: The full committee is only people nominated by governments, and this year I think it's all people from government, but we also have observers of the committee.

Owens: Very active observers.

Lennard: Yes, very active, which is good. How good depends on the quality of the intervention! But it was felt that this was a subcommittee where it was a governmental issue that needed to be addressed. Some of the other subcommittees, such as transfer pricing, do have some people from the private sector involved, as well as academics and so forth. Its mandate is monitoring and informing developing countries of what's happening. It will engage with developing countries about what's happening and will seek their comments.

This is where we have not a fork in the road, but the road will diverge and converge at separate places. One thing the subcommittee will do is feed into the U.N. work. This is why the mandate differentiates between "big B" BEPS, the base erosion and profit-shifting action plan of the OECD, and "small b" BEPS, which is a continuing concern of the U.N. So some of it will feed into what we are doing, but we will also feed into the OECD work. How the OECD takes that on board (if they do) is up to them. We can't tell them how to run their work. But for me, the relevance is that you might get some useful feedback which is not currently part of the action plan. It might be, for example, "We strongly believe that we need more source-country taxation in the world of the digital economy," which is not really part of the action plan right now.

Owens: That is the view of some large OECD countries, but not all OECD countries?

Lennard: Well, it's in the plan, but it's worded in a way so that the BEPS project is not directly going to address that question.

Owens: How do you discuss PE issues without that?

Lennard: It's a difficult question. Personally, I think it's hard to discuss PE issues, and it is hard to discuss taxation of the digital economy without discussing PEs. If you were to seek a consensus, I think at the present moment, you would need more source-state taxation than in the headline OECD model. But I guess it could be said that there is no actual subdivision between source- and residence-country taxation. There's no uniform agreement on that at the moment. Countries won't be forced to have more source taxation -- or less -- although I think it's more a question of whether there is more or about the same. So I think that is an issue, but I think the outcome will be that you couldn't get a consensus on some of these issues, so you'll just have to live without a consensus but with transparency as to what's been achieved, which, as I've said, is often our model in the U.N. -- of saying, "Well, we can't get complete consensus, but we can narrow the points of difference. We can have a few options, rather than 100, and we can explain the pros and cons of different operations."

Owens: On the big issues, like PE, it does seem to me that the OECD is a little bit more open, perhaps, to actually saying, "Well, we need to reconsider this concept." The U.N., perhaps, a bit more as well, so there may be some room for additional convergence here?

Lennard: If we can achieve greater convergence, then I think that's useful. We achieved some creative convergence on services; the fact that there is something, even a minority approach, in the OECD where there wasn't anything before, I think that was a significant development. At some stage we might actually look -- might their drafting be better than ours in some respects? I think in some respects, yes; maybe in some respects, ours is better. I always say we should seek consensus, but you've also got to recognize where consensus is not possible. I think it's best to recognize that, so you don't give the appearance of consensus when you don't have it, and then that will break down at some stage.

Owens: And that's not in the interest of government or business, of course. I was always very favorable on the transfer pricing guidelines to allowing countries to set out their positions. What was happening in a lot of the guidelines was that you were fudging differences in a country's views so that you got an apparent consensus. And then that consensus was not being applied, and I think one way of dealing with that was actually to have countries put in observations. The other comment I would make is that I do think you're right -- that we're going to see more source-country taxation, and it's going to be primarily in the area of withholding taxes. When the Netherlands tells African countries, "We are open now to move away from our policy of zero withholding," then that's a big change.

Lennard: I think this is a classic example where we might get some movement, whether you regard it as something missing from BEPS or whether you regard it as something not relevant to the OECD BEPS work, but it will certainly be relevant to the U.N. base erosion and profit-shifting work -- "small b" BEPS. If countries come back, as I expect them to, and say, "Well, we need strong withholding taxes," that will be relevant to our work but is not really part of the OECD action plan. It is always very unfashionable when I mention that to a business audience. They don't need to be so high that you don't get the benefit, and you shouldn't strangle the golden goose. But they are part of the solution for developing countries, and it's not really part of BEPS. Something else that is potentially part of BEPS that may be more important to developing countries is denying deductions when payments are made to what are sometimes called tax havens. We don't usually use that term because it's a misused term, and small countries are sometimes branded for practices which might not be any worse than are happening in the bigger countries that we don't think of in connection with that term. They're often rough solutions; they need to be joined with good tax administration so that if there's a refund system, the refunding system works.

Owens: Even some OECD countries are not good with that element.

Lennard: That's right. These are some of the issues where I think our base erosion and profit-shifting agenda may be a little different. Not because of any philosophical difference between the U.N. and the OECD, but because what works for developing countries -- the benefit of a withholding tax regime -- might far outweigh the bluntness of it for those countries. Whereas for a developed economy, the benefits are outweighed by the costs, as they see it; it's a decision for them.

Owens: One thing you haven't mentioned on the BEPS is action point 5, harmful tax practices. You don't see that as being relevant to developing countries in any way on the issue of tax incentives and harmful tax competition?

Lennard: Tax incentives are a huge issue, and I think that will be one for our new committee on the taxation of the extractives especially. It's a recognized problem, and it was recognized in that report from 2011 that we mentioned -- that incentives are often given away when they're not necessary, particularly in mining and other extractive industries. They're often not necessary; the investor is going to come anyway. Even when they're there, they're often not given out by the tax body -- and they may not even know anything about it in some countries.

Owens: Countries where the finance minister learns about the incentive by reading about it in the newspaper?

Lennard: Yes, or even when they do a tax audit, and something is shown. There are some governance issues with that, but there are some deeper issues -- that one country is being played off against the other, whether it's treated as harmful tax competition or whether it's just treated as behavior that's not even useful to you.

Owens: Wouldn't that be the case, in fact, to see whether you could get the U.N. committee to have a look at the 1998 report on harmful tax competition and to see whether there was a sufficient consensus within the committee to say, "This is something we could broadly endorse, maybe with some amendments"?

Lennard: That's something that someone at a meeting -- an observer -- could raise, or someone within the committee could raise. That hasn't, to my knowledge, been raised specifically, perhaps because so much emphasis is now on the BEPS agenda, there's less emphasis on the former OECD work. There was some very good work done in that area. There was also criticism in some areas that it had targeted certain countries and so forth.

Owens: Targeted! We never targeted countries! One of the interesting things today is when you look at the work the OECD did on the exchange of information and bank secrecy; we had a pretty clear definition of a tax haven. You can't define a tax haven today because they all, in principle, are prepared to exchange information. So in a sense, I think in today's environment, we all have a little bit of elements of a tax haven -- we're all sinners.

Lennard: It's very interesting. That's not a criticism of that OECD work, but it was genuinely a lot of the small countries in the U.N. who said, "It's not a level playing field: If we do something, we get targeted; if others do, then they might get away with it if they're big enough." I'm not commenting specifically on the rights and wrongs of that, but it's always something we have to be very sensitive about, which shows that anything like that needs to be done in a process of engagement with all those involved.

Owens: Which you have, like now, the Global Forum7 of 120-odd countries. They met quite recently in Jakarta; they looked at the issue of ratings, which comes out of your issue of whether big countries are going to be rated in the same fashion as small countries. They've also looked at the issue of automatic exchange -- it was quite an interesting meeting.

Lennard: Yes, my boss was actually there, so the U.N. participates in that work, and I think it's important that we do participate as much as we can, even though our limited resources make it difficult. Everyone is saying now that the IMF, World Bank, OECD, and the U.N. should meet more regularly and should discuss their work with each other to avoid unnecessary duplication, which I fully agree with. The problem is the resourcing and the amount of time we spent on that 2011 report -- sometimes in our tiny Secretariat, I feel like a small developing country with only very limited resources to draw upon and big things to do.

Owens: You should get with the big countries like China and India and Brazil, and say how important your committee is and ask them why aren't they putting their money where their mouths are. I mean, a million dollars for China or India is peanuts.

Lennard: I think we've shown in the transfer pricing manual, part of its relevance was Chapter 10, where China and India and Brazil, and South Africa too, had the chance to give their perspective, and I think that was a very important vehicle for some developing country views. I do hope they see our work as worthy enough that it will be more fully resourced than it has been. We have to make sure that it is seen as important work first. I think we -- we being the committee first and foremost and, secondly, the Secretariat -- I think we've done a pretty good job on that, and I think we will continue to do so. But yes, we do have to speak to more countries and say, "If you want this work to continue, you do have to support it, because it can't be self-supporting." The more resourcing we have, the more we can do.

Owens: Why don't we move to the last round, on natural resources. Again, what is the function of this group? How will it interact with other organizations at the IMF, European Commission, and World Bank?

Lennard: That's a very good question because we're conscious, being so small, that we make sure there is a U.N. value-add, which we do think there is. We often think there's a U.N. value-add because tiny though we are, I think we're genuinely trying to reach something that works for developing countries -- something that's balanced and credible for investors, too. I think with the U.N.'s universality, and what we call its "convening power" -- the fact that we work with multi-stakeholders -- we have a special role. We invited NGOs, and also business, to speak to our members at a pre-meeting before the Geneva meeting, just to introduce their thoughts, to get to know the members, and for recognition that government people can't be the only people speaking to these debates. There's a liquefied natural gas proposal off Tanzania at the moment, which, I think it's estimated, will cost $10 to $14 billion for that plant; Statoil is involved, as I recall, from Norway. That's a big investment, so certainty is important, but on the other hand, countries genuinely want to know that undue rents are not being earned on their extractives and that the nation is getting the full benefit of those resources.

So it's going to be a subcommittee, which will comprise government people, but also people from the private sector, at least. We will certainly be inviting representatives from the World Bank, the IMF, and the OECD to participate. We realize the importance of technical expertise of such organizations -- having worked at the OECD myself, I'm respectful of that. So I think that's part of the answer. We will look to see where we can add value.

Owens: Given the enthusiasm you have, that leads us quite nicely to one of the last questions that I have: Where is the U.N. tax committee going to be in 10 years' time? And will it be with or without you?

Lennard: Ten years is a long time. The committee itself has been under very good leadership for many years now -- various leaders -- and this is a very strong committee that we have today. I said that at the last committee, and I can say that again. I hope we have more LDC countries on them. We don't get a lot of nominations.

Owens: Why is that?

Lennard: I think they've so many issues on their plate already, and maybe it's partly a branding issue because it's actually -- and I know this is something you've been thinking about -- it's not just a committee about international taxation. It's about international cooperation in tax matters. It does have a role in assisting countries to deal with domestic tax issues, such as in the extractives area. My personal view is that it will probably be country representatives formally representing their country; hopefully, it will be a lot better resourced, and as for me, I think that will be just before retirement age.

Owens: Tax people don't seem to retire, given my experience.

Lennard: I'm not sure where I'll end up in 10 years; I'm always reminded, when people ask me, of an Australian High Court judge, very colorful and very influential, who one day dealt with a case about someone who'd had an argument with someone else and was described by the magistrate as an agitator and sent to jail with hard labour. This judge, Justice Lionel Murphy, in reviewing the case, went through the history of agitators and the importance of agitators in the imperfect society, and in the end, his conclusion -- which is a very famous Australian legal saying -- is "Mr. Neil is entitled to be an agitator." I hope I'm still agitating in 10 years and maybe beyond.

Owens: I think that's a lovely way to end our discussion today. May we both continue to agitate for many years to come.


1 Professor emeritus of tax law and senior adviser, Canadian Tax Foundation.

2 Head of the International Tax Legislation Department of the Revenue Administration in the Ministry of Finance of Chile and member of the U.N. Committee of Experts on International Cooperation in Tax Matters.

3 Director-general, deputy head of the Tax Law Department, Norwegian MOF, and member of the U.N. Committee of Experts on International Cooperation in Tax Matters.

4 "Supporting the Development of More Effective Tax Systems," available at

5 OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

6 Policy manager, New Zealand Inland Revenue Department, and member of the U.N. Committee of Experts on International Cooperation in Tax Matters.

7 The Global Forum is the continuation of a forum that was created in the early 2000s in the OECD's work to address the risks to tax compliance posed by tax havens. Available at


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