Linking policies : inter-nation equity, overseas development assistance, and taxation

Abstract

The goal of this article is to connect overseas development assistance (ODA) with the international tax framework more generally, and double tax treaties in particular. The 2017 revision of the OECD and U.N. models have had the effect of revising the preamble of both models and conferring on them a revived objective, which is no longer restricted to the avoidance of double taxation, but also includes forestalling “opportunities for non-taxation or reduced taxation through tax avoidance or evasion.”1 They do so without paying attention to equity or distributional considerations among the treaty states. Bilateral tax treaties are concerned with tax base allocation between states, splitting them into source and residence countries. Within the realm of ODA, to put it crassly, the primary concern is redistribution and assistance granted by rich countries to poor. However, redistribution is significantly affected by tax considerations, as this article will demonstrate. If improperly attuned, the interaction between redistribution and taxation — two seemingly distinct but parallel cash flow and transfer networks — can create a system that first allocates most (or as many as possible) taxing rights to the resident state, and then requires the residence state to donate a part of the accumulated resources to the source state through direct or indirect transfers in the form of ODA. The first part of this article discusses the trends in ODA, following the data publicized in the April 13 Inter-Agency Task Force on Financing for Development (IATF) report, “Financing for Development: Progress and Prospects 2018.” It discusses some of the conditions for redistribution of funds to recipient states — in particular, by considering the exemption mandated by most international assistance projects. The second part considers how the tax system might provide a better answer to the issue of redistribution, if redistributive goals were included in the preamble of bilateral tax treaties. It further highlights how national rent might be allocated in accordance with inter-nation equity principles.