On 20 May 2022 the OECD published a report on Tax Cooperation for the 21st Century. The German G7 Presidency requested the report from the OECD to examine further moves to strengthen international tax co-operation and make recommendations for action.

Corporate tax

The first part of the report is concerned with the corporate tax landscape and the need for collaborative, digital administration of common tax rules. Developments on international corporate tax must not present an obstacle to cross-border investment. Administration of the common tax rules should be a collaborative exercise, using risk assessments and coordinated action together with a mechanism for binding resolution.

Administration of the common international tax rules should be supported by effective digital communication channels and one-stop shops to ease compliance. Communication with taxpayers and between tax administrations should be facilitated digitally while maintaining data privacy and confidentiality. In response to the latest developments in international tax, countries should be looking to change the parts of their domestic tax rules that have become duplicative and unnecessary.

Wider issues

The second part of the report looks at wider issues including the further development of international information exchange to increase real-time data availability. As there is a trend towards more real-time data, countries should consider gaining more timely access to tax information held by other countries, using the latest technologies while maintaining confidentiality.

Tax compliance processes can be made more efficient by integrating data collection and reporting into the processes used by taxpayers, so that tax compliance is designed into systems and processes. This would be more efficient than relying on voluntary compliance models of tax administration. Relevant changes can be made to reporting regimes and further IT tools can be developed to support the changes in tax administration.

Developing countries

The third part of the report looks at the impact of the changing tax landscape on developing countries. The report explores how advanced economies can assisting developing countries in implementing the agreement on the two-pillar solution to taxation of the digital economy. The first objective is to ensure full participation in the process by developing countries. They should be supported by advanced economies, especially through capacity building, so they can benefit from the changes in international tax policy. Support can include financial backing and access to expertise. The G7 could take the lead by putting forward a support package for implementation of the two-pillar solution.

The Addis Ababa Action Agenda on Financing for Development emphasises the central place of domestic resource mobilisation in providing the financing for large-scale, long-term development. The action plan on base erosion and profit shifting (BEPS) and the developments in international exchange of tax information have provided additional tools for use by developing country tax administrations in improving the mobilisation of domestic resources, but so far progress has not been sufficient. Obstacles include political issues in passing legislation and ratifying instruments, but also practical problems with ensuring confidentiality of information exchanged. Limited capacity in the tax administration can restrict its ability to make use of the increased information available and may restrict the scope to improve tax compliance and provide more certainty for taxpayers.

Developing country tax administrations have an opportunity to make use of technological advances to introduce cutting edge approaches to administration. For example, a number of developing countries have already taken a lead in introducing real-time invoice reporting for value added tax. Developing country tax administrations need to formulate clear objectives for use of technology and put in place the appropriate financing and specialist staff, with effective governance.