ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD)
1. Context
As economic realities change, negotiated relations among countries must also adapt. There is a need for periodic review of tax treaties, especially with respect to their economic benefits
To avoid double taxation, tax treaties may follow one of two models: The Organization for Economic Co-operation and Development (OECD) Model and the United Nations (UN) Model Convention
2. What is the Organisation for Economic Cooperation and Development (OECD)?
- The Organisation for Economic Co-operation and Development, often abbreviated as OECD, is an international organization that was established in 1961.
- The OECD is comprised of 38 member countries, primarily from Europe and North America, which cooperate to promote economic growth, improve living standards, and address global challenges.
- The organization serves as a forum for member countries to discuss and coordinate policies, share information, and collaborate on a wide range of economic and social issues.
- The OECD is known for its comprehensive reports, including the OECD Economic Outlook, which provides economic analysis and projections for member countries, and the OECD Better Life Index, which assesses the well-being and quality of life in various countries.
- While the OECD primarily consists of high-income countries, it also collaborates with non-member countries and international organizations to achieve its goals. The organization plays a significant role in shaping international economic and social policies and promoting cooperation among nations.
2.1.Objectives of OECD
- The OECD conducts research and analysis on various economic topics and provides policy recommendations to member countries to support sustainable economic growth
- The organization works to reduce trade barriers and promote trade liberalization among its member countries, contributing to economic integration and cooperation.
- The OECD collects and analyzes data on economic and social trends, allowing member countries to compare their performance and learn from one another.
- The OECD produces reports, recommendations, and guidelines on various policy areas, such as taxation, education, health, environment, and more
- The OECD addresses pressing global challenges, such as climate change, income inequality, and social issues, by providing a platform for cooperation and policy development
3. What is the United Nations (UN) Model Convention?
- The United Nations (UN) Model Convention, officially known as the "United Nations Model Double Taxation Convention between Developed and Developing Countries," is a document created by the United Nations to serve as a model template for bilateral tax treaties or double taxation conventions between countries.
- The main purpose of this model convention is to provide a framework for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital.
- The UN Model Convention is specifically designed to address the tax-related issues that may arise when developed and developing countries enter into tax treaties with each other.
- It takes into account the differing economic circumstances and interests of countries at different stages of development.
- The model convention provides a basis for negotiation between two countries to establish the allocation of taxing rights over various types of income (such as dividends, interest, royalties, and capital gains) and outlines the rules for determining which country has the primary taxing jurisdiction.
4. OECD vs UN Model Convention
Key differences between the Organisation for Economic Co-operation and Development (OECD) and the United Nations (UN) Model Convention:
| Subject | OECD Model Convention | UN Model Convention |
|---|---|---|
| Purpose | Designed for tax treaties between developed countries. | Designed for tax treaties between developed and developing countries. |
| Scope | Primarily focuses on treaties among high-income nations. | Addresses tax treaties involving a mix of developed and developing countries. |
| Member Countries | Comprised of 38 member countries, mainly from Europe and North America. | Represents a broader membership of United Nations member states. |
| Economic Focus | Emphasizes the tax arrangements between economically developed countries. | Addresses tax treaty issues with an emphasis on the economic disparities between developed and developing nations. |
| Data and Research | Conducts extensive economic research and analysis. | Incorporates socioeconomic considerations and development issues in treaty provisions. |
| Policy Recommendations | Provides policy recommendations related to tax issues among member countries. | Offers a framework for fair tax treaties that consider the interests and needs of both developed and developing nations. |
| Emphasis on Development | Less focus on addressing economic development and disparities between countries. | Places a stronger emphasis on development concerns, helping developing countries gain tax revenues and economic growth. |
| Applicability | Used as a reference for high-income countries in their tax treaty negotiations. | Used as a reference for any country, regardless of income level, when negotiating tax treaties with other nations. |
| Integration with the UN | Not directly affiliated with the United Nations. | Developed and endorsed by the United Nations, reflecting its principles and goals. |
| Legal Status | Not a legally binding treaty; serves as a guideline. | Not a legally binding treaty; serves as a model for countries to base their bilateral tax treaties on. |
5. Way forward
OECD and UN Model Conventions aim to provide a framework for international tax cooperation and the prevention of double taxation. The choice of which model to use in a specific tax treaty negotiation often depends on the circumstances and interests of the countries involved.
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For Prelims: Economic and Social Development For Mains: General Studies II: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s Interest |
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Previous Year Questions 1.Consider the following statements with reference to Organisation for Economic Co-operation and Development (OECD): (RBI Grade B 2022) 1. OECD is an official Permanent observer to the United Nations and is referred to as a think-tank or as a monitoring group. 2. India is not a member of OECD. 3. OECD is funded by its member countries. Which of the statement given above is/ are correct? A.1 only B.1 and 2 only C.2 and 3 only D.1, 2 and 3 E.2 only Answer (D)
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Source: indianexpress
