Sometimes a book arrives at just the right moment in history. That is the case for The United Nations in Global Tax Coordination by Dr. Nikki J. Teo, which tells the story of the United Nations (UN) Fiscal Commission, a short-lived attempt in the mid-20th century to create an international tax process that would reflect and support the interests of developing countries. The product of years of doctoral research, the book was published just before the UN General Assembly adopted Resolution 78/230 (22 December 2023) to establish a new UN process for international tax cooperation. It has deservedly won the 2024 IBFD Frans Vanistandael Award for a publication in international taxation.
The United Nations in Global Tax Coordination is a work of substance about tax cooperation at the UN and before it, the work of the Fiscal Committee of the League of Nations. Teo explores the growth and decline of the UN Fiscal Commission at a time that saw a growing divide between “developed” and “developing” countries. She draws on archives of the UN, the League, and British and US governments to tell an intriguing story of shifting geopolitical, economic, and business alliances during the second world war, and Cold War gameplaying.
As Teo observes, the work of the UN Fiscal Commission is less well known than the “origin” story of international tax coordination at the League’s Fiscal Committee, which included the 1923 Four Economists Report, the first major study of international double taxation. This was followed by the drafting of Model tax conventions and many detailed reports on international tax led by US lawyer Mitchell B Carroll in the 1930s. Despite its significant work, the Committee failed to reach agreement before its dissolution in 1948, instead producing two conflicting Model tax conventions, the pro-source country 1943 Mexico Model and the pro-residence country 1946 London Model.
In its final communications, the League’s Fiscal Committee urged the UN to establish a replacement tax forum that could reach a consensus agreement, ideally comprising “a balanced group of tax administrators and experts from both capital-importing and capital-exporting countries and from economically advanced and less-advanced countries.” (P. 1.) This goal was not achieved during the brief life from 1946 to 1954 of the UN Fiscal Commission. Instead, the Commission was made up of representatives of countries who soon aligned along regional and cold war lines. In the end, the capital-exporting countries, especially the US and the UK, succeeded in shifting the locus of negotiations out of the UN altogether, to be taken up by the Organisation for European Economic Cooperation, later the Organisation for Economic Cooperation and Development (OECD), which became the dominant player in international tax.
Teo’s book is rich in detail and I provide just a few highlights here. First, it is interesting to learn more about the Mexico Model and its strong pro-source country stance. The Model was a product of agreement among countries in Latin America, with some other capital-importing countries, during the 1930s, with the apparently short-lived support of the US which initially adopted a pro-economic development posture in the region. Even this may have been achieved only because other capital-exporting countries, and later the US, were distracted by war raging in Europe and the Asia Pacific. US academic institutions, especially Princeton (predating Harvard’s involvement in tax and development from the 1950s) were initially engaged with the negotiation of the Mexico Model. However, it was not long before US businesses, whose interests were largely represented (Teo suggests) by Mitchell B Carroll, expressed concerns about high source country taxation on cross-border investment.
Second, Teo shows the importance of key individuals operating in an institutional system, with a helpful cast of characters in appendix 1 of the book. We see here, as in other international tax literature, the tireless presence of Carroll. As well as authoring many reports on international tax for the League’s Fiscal Committee, Carroll was one of the founders of the International Fiscal Association. Despite his global outlook, Carroll was a strong advocate of US interests in these forums and he seems to have been influential in the rise and fall of the UN Fiscal Commission. Less well known is Paul Deperon, a member of the League Secretariat from 1931, Secretary to the 1943 Mexico Regional meeting, and Director of the UN Fiscal Division from 1946-1948. Deperon worked hard to promote the credibility of the League and UN fiscal committees, while providing continuity to support the UN Commission’s work. Teo describes some of the challenges of working in the nascent bureaucracy of the UN, which was poorly resourced and often haphazard in its organisation.
Third, Teo shows how the residence-source debate developed in the UN Fiscal Commission through a focus on residence country relief of double taxation through an exemption or credit method. This grew out of a more specific debate about source taxation of the rapidly growing aviation sector that engaged the International Civil Aviation Organisation, which was dominated by the US. A group of countries including Chile, Pakistan, and India called for the exemption of foreign source income by capital-exporting countries to remove a barrier to foreign direct investment, referencing a report, Measures for the Development of Under-Developed Countries (1951) produced by the Economic and Social Council of the UN (ECOSOC). Agreement could not be reached and from this time onwards, international tax negotiations became embedded in a developed-developing country divide. This early ECOSOC report on encouraging foreign investment became part of the broader framework of economic development that would come to dominate the UN approach up to and including today’s Financing for Development process for achieving the 2030 Sustainable Development Goal Agenda.
Fourth, Teo shows how the UK and US, with other capital-exporting countries and supported by the International Chamber of Commerce representing business interests, terminated the UN Fiscal Commission on the basis it was no longer “useful”. By the end of its life, the Commission could accomplish little but “rubber stamp” the US-approved work done by the UN bureaucrats, while the ongoing debate about double tax relief was “suffused with underlying political tensions and alliances.” (P. 336.) Capital exporting countries ultimately determined that the source tax position and exemption method was against their interests, although this took some time to be settled, as Fiscal Commission negotiations were complicated by cold war politics and influence of the Soviet bloc.
Teo’s book is powerfully relevant today, as we continue to observe deep tensions between capital exporting and capital importing jurisdictions. The majority of OECD member states voted against the Resolution for a new and inclusive tax negotiating framework at the UN last year. Yet work is proceeding, and the UN Ad Hoc Committee on 16 August voted on the terms of reference for the convention that will now go to the General Assembly for consideration by the end of 2024. The Committee voted overwhelmingly in favour of the terms of reference. Most European Union countries abstained, while only eight countries voted no (Australia, Canada, Israel, Japan, New Zealand, Republic of Korea, the UK and the US). It is disappointing to see these democracies vote against a UN framework convention, and we must hope for a change in approach. Developed countries must not miss the opportunity to build positively on previous cooperative efforts led by the OECD and to help to establish the beginnings of a truly inclusive UN tax forum. Meanwhile, we can all learn from Teo’s book in negotiating, observing, and critiquing the latest developments.
