I can almost hear Latin American tax authorities thinking: ‘What is this about improving dispute resolution?’. ‘Isn’t this only helping tax evaders?’ And: ‘Our priority is collecting revenue.’ ‘This is only going to cost us.’

At Tribute, our contribution is, above all, to justice. Justice for taxpayers, yes. But justice also for tax authorities who, due to limited capacities or restraint resources, have difficulty standing up against more powerful multinational companies or foreign authorities. Those are typically – but not exclusively – authorities from developing countries.

That said, the availability of mechanisms for fair and effective dispute resolution and prevention, at the practical level, is generally recognized of major influence on taxpayers’ compliance attitude, in that it encourages disclosure of data or strategies which otherwise might have been held back. By the same token, OECD and IMF, in their current joint project on improving taxpayer certainty, focus on the availability of mandatory binding arbitration – next to APAs, MAPs, voluntary compliance programs (such as ICAP), and joint audits. They identify tax certainty and business tax morale combined as key ingredients to mobilizing domestic resources in developing countries.

Already as early as in 1985, the famous American economist Carl Shoup, who spent a lifetime advising countries all over the world on their tax reforms, advocated the special benefits developing countries might derive from tax arbitration.[1] Independent expert review is precisely there to balance differences in capacity, expertise, economic, financial or political powers. The prevailing mood to date, however, remains one of, let me say, skepticism, despite serious efforts by OECD (BEPS Action 14 and follow-up) and United Nations (Subcommittee on dispute avoidance and resolution). Obviously, there is a lack of awareness and experience, but that bothers all countries to some extent or another – and as such is a main target of Tribute. I have three observations why I believe low response particularly from developing countries is unnecessary.

• Much of the discussions so far have gone over the heads of developing countries. Take for example the current composition of the UN Subcommittee. The majority of its delegates are from OECD member countries and from business or advisory, who understandably press for approaches to dispute resolution or prevention which best match with their advanced legal systems or practices and serve their best interest. Developing countries must have felt overwhelmed by the sophistication of models proposed, and by the urgency they were required to implement them. I was not surprised that the United Nations failed to agree on even such innocent proposal as the inclusion of non-binding mediation as a mere possibility into its present 2017 Model Tax Convention – however much disappointing that was.

• Causes of disputes may vary substantially between countries, depending on such factors as culture, technical abilities, human capacities and financial resources, legal frameworks, and compliance attitudes – and so may their resolutions. Yet, both the OECD and UN Model Tax Conventions provide only for arbitration, and in that for only two alternatives of arbitration procedures: short form, non-reasoned, so-called ‘baseball’ arbitration and conventional reasoned opinion arbitration. This is a choice between two opposing US and European schools of thoughts – a choice that fits only few other countries, let alone developing countries. It requires a much wider palette to do proper justice to the many country diversities there are in reality. One which provides, among others, for in-between options of arbitration, for instance reasoned ‘baseball’ arbitration; non-binding instruments, such as mediation, technical advice, or non-binding arbitration; techniques to review how laws may be made less controversial, and relations with taxpayers less litigious; and strategies for effective dispute management in tax administrations. At the end of the day, it is the commitment to resolving disputes, more than the choice of instruments, that matters.

• Capacity issues are a common and serious problem among developing countries, but cannot be a valid excuse, really, not to commit to proper dispute resolution or prevention. The problem of capacity in handling international tax disputes is of a general nature, affecting even major developed countries. It is a highly specialized and likewise scarce expertise, which arguably can only be acquired by training on the job. (At Tribute, we avail of former Competent Authorities especially for this purpose.) In addition, some areas, for example transfer pricing or profit allocation for certain specific industries, may require specialized topical knowledge, which authorities ordinarily do not avail of themselves. Facilitation from external experts, to some extent or another, is obviously a necessity, in particular for developing countries. There are costs involved with that, certainly, but less than often assumed, and in any case not so much as to be prohibitive. Costs of arbitration or mediation, for instance, are ordinarily far less than costs of litigation, as legal representation, though not excluded, is not anticipated in these processes. Limited financial abilities may be taken into consideration in allocating procedural costs. Also, trust fund constructions might be designed from which costs are reimbursed, like in the case of the World Trade Organization.

To secure that efforts undertaken match the particular needs and interests of developing countries, it is best indeed that developing countries take themselves the initiative and lead. Tribute is most happy to join CIAT in the webinar on July 6, and it is ready to support and assist in any follow-up actions to promote effective tax dispute resolution and prevention as CIAT may hopefully decide to.

[1] Carl S. Shoup, International Arbitration of Transfer Pricing under Income Taxation, in: Rugman and Eden (eds.), Multinationals and Transfer Pricing, Croom Helm (1985).

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