This content is from: Direct Tax

Incoming OECD secretary-general to face higher tax policy pressures

Former Australian finance minister Mathias Cormann will begin his five-year term as OECD secretary-general by focusing on the coronavirus economic recovery, climate change and digital tax but climate experts are sceptical of his stance on environmental taxation.

A committee of ambassadors from the UK, Luxembourg, Mexico, and Japan selected Cormann among other applicants in a bid to replace Angel Gurría as secretary-general of the OECD in December 2020. The decision was sealed after the OECD Council, with government representatives from 37 member countries, voted for Cormann over former EU trade commissioner Cecilia Malmström on March 15. Gurría has held the role for more than 15 years and will step down when Cormann takes the role on June 1.

UK Foreign Secretary Dominic Raab said he is looking forward to working closely with Cormann to support the global economy to recover from COVID and step up the fight to tackle climate change. “As the UK holds the presidency of the G7 later this year, our close partnership with the OECD will be vital to building back better from this pandemic,” said Raab.

The position will be influential in sustaining international negotiations on multilateral tax policy during the world’s post-pandemic economic recovery. This marks a significant inter-governmental political change because Cormann is the first secretary-general to emerge from the Asia-Pacific region, as previous candidates were from Europe and the Americas.

Andrew Liveris, chairman of the board of directors of Dow Chemical, said this was major news for the OECD and Australia: “Cormann is a globalist who understands the trade-off between growth and development, and caring for the economy and the environment. He is going to be a terrific OECD secretary-general.”

The international business community thinks this is a short-term win for ongoing international tax negotiations at the OECD on its digital tax agenda and a long-term opportunity for business-focused economic policies tied to the COVID-19 pandemic recovery. However, Cormann had a controversial history with climate science policy during his terms as finance minister in Australia, and he is receiving some pushback from climate experts on the future of carbon-pricing policies.

Cormann’s controversial climate science position

Climate activists wrote to the OECD in March rebuking his appointment in a letter signed by 29 climate experts. They said Cormann is a poor candidate for the OECD’s top position because he opposed key climate change initiatives in Australia.

Jennifer Morgan, international executive director of Greenpeace, said: “We have little confidence in Cormann’s ability to ensure the OECD is a leader in tackling the climate crisis when he himself has an atrocious record on the issue, including opposition to carbon pricing.”

Kurt Van Dender and other top OECD officials working on environmental taxation reports and toolkits in 2020/2021 have told ITR that carbon pricing is essential to ensure alignment of broad stimulus programmes with decarbonisation objectives.

In response to his recent appointment and criticism, Cormann released a statement highlighting climate change as a key challenge, promising to pursue an ambitious, global approach to help countries become carbon-neutral by 2050. He also highlighted finalising a multilateral approach to digital taxation and strengthening OECD outreach into the Asia-Pacific region as other top priorities.

“There is much work to be done, global cooperation on economic, social and environmental policies is more important than ever,” said Cormann. “I can’t wait to get stuck into it.”

Businesses welcome Australia’s international influence

A strong political career as a finance minister in Australia lends Cormann key support from large business leaders, who are expecting greater tax certainty from international cooperation after finalising a multilateral approach to digital taxation. They are also expecting market-based policies and a rules-based international order that promotes a post-pandemic economic recovery.

As Australia’s longest-serving finance minister, Cormann made notable moves for large businesses including signing the first major post-BEPS treaty between Australia and Germany, which formed a blueprint for other bilateral treaty agreements.

German parliamentary member Volkmar Klein said: “This is good news for Germany. As long-standing Australian finance minister he made significant contributions to our bilateral relations including a joint discussion with companies from Siegen-Wittgenstein, for whom Australia is an important market.”

Australian Prime Minister Scott Morrison said this is the most senior appointment of an Australian candidate to an international body in decades. However, it comes at a challenging time as Cormann will likely need to manage the final months of notable political and technical tax tensions from about a 139 countries involved in overhauling international tax rules via the OECD process.

Economic differences will lead to different winners and losers under the OECD’s digital tax agenda. For countries in the Asia-Pacific region, Singapore and Malaysia are among the richest, Myanmar and Laos among the poorest, while Vietnam, Thailand and the Philippines are moving up in importance.

Cormann may need to fend calls from developing countries for the inclusion or exclusion of certain details in the two-pillar solution, such as mandatory binding arbitration. He will also have to deal with alternative tax proposals such as the UN’s treaty-based solution to taxing digital services, for which a final version is due to be agreed in April.

Tax justice campaigners claim that developing countries have found more influence in recent digital tax negotiations because alternative solutions, including the UN proposal, threaten the OECD’s two-pillar approach and could exacerbate US-EU trade tensions in the absence of a consensus by the July 9 deadline.

Cormann’s political background as a finance minister could help balance various government interests when delivering a multilateral tax solution. He may work well with leaders in developing countries, especially in the Asia-Pacific region, but a chequered history with climate science policy continues to cloud his prospects on future environmental tax policy.

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