The OECD/G-20 Developing Country International Tax Mandate: Year 3

The G-20 is keeping a close eye on how developing countries are faring at the OECD’s inclusive framework. Within the past 18 months, the group has hosted or supported a number of new symposia and roundtables on developing countries and international tax. Those events help the G-20 take stock of how developing countries are feeling about the inclusive framework and international tax reform efforts.

It certainly helps that the most recent G-20 presidencies have been held by emerging market countries, including the current presidency, which is held by India. But even if those countries weren’t in charge, the G-20 would need to respond in some form to the rising amount of international tax cooperation that’s happening among developing countries. In Latin America and the Caribbean, for example, 16 countries just agreed to create their own regional tax cooperation platform. And within the African Union, political leaders have been workshopping international tax issues, including pillar 2’s global minimum tax. Meanwhile, some developing countries are campaigning for the United Nations to launch its own international tax cooperation framework or convention.

In this environment, the G-20 wants to see real progress on developing countries’ experience within the inclusive framework. It wants deliverables, and it wants them fast. The OECD’s recent reports on developing countries and international taxation are examples of this. In October 2021 the OECD published its first assessment on developing countries and tax, entitled “Developing Countries and the OECD/G20 Inclusive Framework on BEPS.” Exactly a year later, the OECD decided to take a slightly different approach and published the “G20/OECD Roadmap on Developing Countries and International Taxation.” While that release largely flew under the radar, it was important in that it marked the first time that the OECD had released a roadmap specifically devoted to setting goals for developing countries. Just four months after the roadmap was released, the G-20 asked the OECD to issue an update on its progress.

The OECD released that update — its third report on developing countries and tax — on July 17. There’s only so much that can happen in less than a year, but the July report is still important for what it tells us about the OECD’s plans and their evolution, particularly compared with the goals it shared in last year’s report. Overall, the OECD’s plans for developing countries are ambitious, but they’ve also become narrower and more personalized.

A Long Campaign

Why are we talking about developing countries, the OECD/G-20, and international tax? Because about eight years ago, the G-20 decided that it needed to better incorporate developing countries into international tax discussions and deliberations.

We now have the inclusive framework, and more than one-third of its 143 members are developing countries: low- or middle-income countries that are not OECD or G-20 countries and are not financial centers. That’s a far higher percentage than you’d see within the OECD’s core 38-country membership, in which only four members fit the low- or middle-income country designation. Those four — Mexico, Colombia, Turkey, and Costa Rica — are all considered to be upper middle-income countries.

And in recent years, the newest members of the inclusive framework have been developing countries, making them a key growth sector for the inclusive framework.

Old Versus New Priority Items

In 2021 the OECD decided to specially assess developing countries’ progress on the four minimum standards of its base erosion and profit-shifting project and their experiences as members of the inclusive framework. Those discussions resulted in four high-priority recommendations that the OECD made in the October 2021 report. Those recommendations are:

  • Inclusive framework members and other stakeholders should reflect on how developing countries can better access country-by-country reporting, while also protecting confidential and sensitive taxpayer information.
  • Development partners and the G-20 should support a new major inclusive framework capacity-building program that will help developing countries adopt and implement pillars 1 and 2 in an appropriate and timely fashion.
  • The inclusive framework should revisit its governance structures and change them, if necessary, to ensure that developing countries are broadly included. The makeup of subsidiary bodies should also be reconsidered.
  • Inclusive framework members should think about incorporating Working Party 9 on VAT and goods and services taxes into the scope of work, given the importance of consumption taxes in developing countries.

This year’s update sheds some light on how developing countries are implementing the four minimum standards and how those four recommendations are evolving.

Modest Progress Holds Steady

How are developing countries implementing BEPS 1.0 and its four minimum standards? The answer is, incrementally. The four minimum standards are: countering harmful tax practices (action 5), prevention of tax treaty abuse (action 6), transfer pricing documentation and CbC reporting (action 13), and creating more effective dispute resolution mechanisms (action 14).

On action 5, developing countries continue to overhaul their harmful tax regimes after undergoing OECD reviews. They currently account for just over a quarter (26 percent) of abolished regimes, according to the latest report. That’s a slight increase from last year’s roadmap, in which developing countries accounted for 23 percent of abolished regimes.

As for tax rulings and transparency, developing countries are literally making progress one country at a time. In 2019 only one developing country sent tax ruling information to other jurisdictions. In 2020 that number increased to two. In 2021 three developing countries exchanged tax ruling information, according to July’s update. In the October 2022 report, the OECD attributed the low numbers to the fact that “developing countries are less likely to have legislation and administrative practices in place to issue tax rulings that fall within the scope of the transparency framework.” But the OECD fails to discuss what kind of action is necessary to help developing countries get to that place.

Signing and ratifying the OECD’s multilateral instrument is a key part of BEPS action 6. But here, too, progress has been slow. Twenty-eight developing countries have signed the MLI, just one more than the OECD reported last year. However, the OECD notes that two other countries have signaled an interest in signing it. As for ratification, no new countries have ratified the MLI, according to the update. It’s unclear from the report what is preventing developing countries from signing or ratifying it.

Action 14 barely elicits a discussion. This is because many developing countries have few mutual agreement procedure disputes and have delayed their peer reviews on this BEPS item.

CbC reporting under BEPS action 13 has been one of the most difficult issues for developing countries to navigate because most of them cannot access CbC reports. Last year the OECD reported that only five developing countries could access CbC reports filed abroad. In this year’s report, the OECD revealed that eight developing countries should be able to receive CbC reports on foreign-headquartered groups by the end of the year, and that it expects that number to increase.

High Priorities

The OECD’s plans for CbC reporting are closely tied to its four high-level recommendations. At this point, it’s useful to look at how those recommendations are evolving.

Recommendation 1: Inclusive framework members and other stakeholders should reflect on how developing countries can better access CbC reporting, while also protecting confidential and sensitive taxpayer information.

In the update, the OECD revealed that it is creating a tailored support program for CbC reporting. It arrives as more developing countries are incorporating CbC reporting into their national legislation. In the 2021 report, the OECD noted that 15 countries had qualifying legislation. This year’s report found that now 31 have legislation. Given this progress, the OECD’s individualized support approach will hopefully be able to advance CbC reporting even further. On a broader scale, Tax Inspectors Without Borders is also planning to guide developing countries in their effective and appropriate use of CbC information.

The OECD now has a concrete goal in mind: It wants to enable 10 more developing countries to access CbC reports by September 2024 and another 10 between September 2025 and September 2026, according to the latest update.

However, the report also mentions a stopgap of sorts. The idea is to allow spontaneous exchanges of information between treaty partners. Some developing countries have suggested that CbC exchange could happen outside of the automatic exchange of information framework, and they want to discuss the idea with the G-20. The OECD said that those discussions could happen.

Recommendation 2: Development partners and the G-20 should support a new major inclusive framework capacity-building program that will help developing countries adopt and implement pillars 1 and 2 in an appropriate and timely fashion.

Regarding the pillars, the OECD is adopting a tailored approach. It started a pilot program to help developing countries implement the pillar 2 global anti-base-erosion (GLOBE) rules and qualifying domestic minimum top-up taxes. The program also helps developing countries review their suite of tax incentives and their coexistence with the GLOBE regime.

Two things are notable about the OECD’s plans. One is that the organization says training and resources are available to all countries, regardless of their participation in the inclusive framework. This is different from the BEPS 1.0 process, in which the organization concentrated its help to countries that belonged to the inclusive framework. The other is that its assistance will center around “bespoke, bilateral support,” according to the July report. The OECD expects that about 10 to 15 countries will request this kind of support in 2024 and anticipates that twice as many will seek help in 2025. This is a much more personalized approach than the one the OECD initially adopted during the BEPS 1.0 process, when it created regional working groups, held developing country workshops, and invited developing countries to OECD working party meetings.

This time around, the OECD plans to work with countries one-on-one. “Each country is different, and assistance needs to be tailor made. In many cases regional or multilateral approaches can be used for more general or early-stage support, but this will often need to be supplemented by bespoke approaches to deal with more complex and in-depth issues,” the OECD said.

Now we also have some concrete timelines. According to the OECD, developing countries will have access to training, guidance, and e-learning materials on the GLOBE rules by the end of this year. All developing countries will be able to participate in technical assistance programs by 2026.

Another notable update is that the OECD plans to rely more heavily on regional development banks in the implementation phase. The Asian Development Bank’s Asia Pacific Tax Hub and the OECD are planning to launch a help desk on pillars 1 and 2, and the OECD says it might do this in other regions. This is important because it builds on a trend that has been growing over the past few years: Regional development banks have adopted a larger role in regional tax cooperation, and pillars 1 and 2 could help magnify that.

Recommendation 3: The inclusive framework should revisit its governance structures and change them, if necessary, to ensure that developing countries are broadly included. The makeup of subsidiary bodies should also be reconsidered.

In 2022 the OECD significantly changed the operations of the inclusive framework and subsidiary bodies. First, it created two chair positions for the inclusive framework, one for a developed country and one for a developing country. Second, it created a new advisory group on tax matters and designed it so that developing countries can share more information with the OECD’s Committee on Fiscal Affairs.

The OECD says it’s going to launch an inclusive framework GLOBE implementation stakeholders’ forum this year: a place to discuss capacity-building and other issues.

Recommendation 4: Inclusive framework members should think about incorporating Working Party 9 on VAT and GST into the scope of work, given the importance of consumption taxes in developing countries.

Why is the OECD emphasizing VAT and GSTs? Because they’re a crucial part of developing countries’ tax revenue. For example, in Latin America, indirect taxes account for about 50 percent of the region’s total tax revenue.

And those regimes are evolving. An increasing number of countries are updating their VAT/GST regimes to address e-commerce, and the OECD is concerned that developing countries lack the resources to adequately tackle the issue. The OECD has already released some VAT digital toolkits specific to Africa, Asia, and Latin America. It says it will next provide top-to-bottom, bespoke technical assistance to jurisdictions. Essentially, any need that a country has within the process — from determining whether reform is necessary to creating policy options, drafting legislation, and implementing administrative and compliance processes and audit and enforcement strategies — will be handled.

This work on VAT and GST will also be important because the OECD regards it as a way to help support the U.N.’s sustainable development goals. There’s been a lot of discussion recently about how taxation can help support those goals. It’s an issue that the OECD mentioned in last year’s roadmap, but it didn’t offer many details on how that could happen. This left questions about what that support could look like, particularly because neither the inclusive framework nor the BEPS project was designed with the sustainable development goals in mind. The OECD’s plan to focus on VAT and GST is encouraging because it shows the organization is willing to address tax issues that are most important to developing countries within the inclusive framework, even if the issues are not strictly tied to the BEPS projects.


We now have a much clearer understanding of the direction the OECD wants to take and its goals for the next few years. As its reports on developing countries have evolved, its plans have become much more concrete and easier to assess. Although this is extremely important, more from an accountability standpoint, it also would be helpful if the OECD, in future reports, could include specific anecdotes about the capacity-building process. As developing countries successfully implement parts of BEPS 1.0 and 2.0, it would be useful to know exactly how they did so and what challenges they encountered along the way.

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