Gurria Wants Tax To Help Fix Global Economy

by Mary Swire, Tax-News.com, Hong Kong

02 November 2009

Organization of Economic Cooperation and Development members should be looking at tax policy and its administration alongside other structural policies to strengthen financial markets, and to ensure that taxation does not introduce economic distortions or promote excessive risk taking, OECD Secretary-General, Angel Gurria, stated recently.

Applying good tax governance in the financial sector is a major challenge, Gurria told this year's International Tax Dialogue Global Conference held in Beijing, and he offered the following observations on this challenge:

"The contribution of the financial sector to the economy is very significant, yet the global mobility of profits from financial services means it is a fragile plank in the overall tax base," he observed, continuing:

"Financial services are a vital source of growth and support for productive activity in developing and developed countries alike, and taxation must be applied even-handedly and with a light touch if it is not to choke off those benefits."

"While tax may not have been a primary cause of the financial crisis, it has to be part of the solution. We in the OECD, like in the IMF and in other organisations, have been asking whether the tax treatment of financial instruments, of housing, of executive remuneration may have contributed in some way to financial instability."

The OECD Secretary General went on to suggest that:

"Innovation in the financial sector creates particular challenges for tax policy makers and administrators, but also offers unique opportunities. Financial innovation has shifted traditional and longstanding boundaries in taxation, such as differences between debt and equity, income and capital or income from capital and income from labour. This is a challenge for tax policy, and for tax administrators. It is their job to control aggressive tax planning around these boundaries which can undermine revenues."

Gurria told those attending the conference that they should consider how "tax policies and cross-country co ordination of tax compliance measures might help to secure tax revenues from the financial sector on a level playing field basis".

The conference should also "reassess whether the traditional tax boundaries make sense – whether financial market innovations are in fact a catalyst for changes in tax policy which would reduce distortion and be easier to administer", he concluded.

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