OECD Insights on COP21

OECD COP21

Over the past year, OECD Insights has published a series of blogs from contributors inside and outside the Organisation on the issues being debated over the next two weeks at COP21 in Paris. Here they are, in alphabetical order by title:

Meeting climate goals will require stronger policies to cut emissions

Two secrets concerning a value chain approach to corporate climate change risk-management

MNE_4li-72dpi_17may13Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

This coming week the world’s leaders will gather in Paris to discuss approaches to addressing climate change, kicking off the 21st annual meeting of countries which want to take action for the climate, otherwise known as COP 21.

A well-hidden secret is that under the OECD Guidelines for Multinational Enterprises (‘the Guidelines’) businesses are expected to do their due diligence on environmental impacts such as climate impacts. This concerns not only their own negative environmental impacts, but also the impacts in their value chain. Another – less well-kept – secret is that the OECD Guidelines include a unique grievance mechanism known as National Contact Points (NCPs) that could also be utilized for climate-related grievances concerning multinational enterprises.

The Guidelines expect companies to behave responsibly through making a positive contribution to economic, environmental and social progress with a view to achieving sustainable development. Besides, the 46 adhering governments expect companies to avoid causing or contributing to negative environmental impacts. In addition the Guidelines expect companies to seek to prevent or mitigate adverse climate impacts directly linked to their operations, products or services by a business relationship. To achieve this, businesses are called upon to carry out due diligence throughout their value chains to identify, prevent, mitigate adverse impacts and account for how they are addressed.

Due diligence, importantly, applies not only to actual impacts but also to risks of impacts. This is particularly relevant in the context of greenhouse emissions as the extent of climate impacts and what they will mean for a company’s bottom line are as of yet not precisely known.

The Guidelines also include a specific chapter on environment which outlines recommendations for responsible business behaviour in this context. For example businesses are encouraged to continually seek to improve corporate environmental performance at the level of the enterprise and, where appropriate, of its supply chain, by encouraging such activities as: development and provision of products or services that reduce greenhouse gas emissions; providing accurate information on greenhouse gas emissions and exploring and assessing ways of improving the environmental performance of the enterprise over the longer term, for instance by developing strategies for emission reduction. Furthermore, the disclosure chapter of the Guidelines also encourages social, environmental and risk reporting, particularly in the case of greenhouse gas emissions, as the scope of their monitoring is expanding to cover direct and indirect, current and future, corporate and product emissions.

These expectations suggest that enterprises should not only be concerned with their direct emissions and impacts on climate change, but that they should also be aware of their carbon footprint throughout their supply chains and that their due diligence efforts should be targeted accordingly. A value chain approach is particularly important in the context of climate change issues as often the majority of emissions will be generated throughout supply chains rather than direct emissions. For example, Kraft Foods, one of the world’s largest food and beverage conglomerates, found that value chain emissions comprise more than 90 percent of the company’s total emissions.

However the supply chain approach has yet to be mainstreamed in the field of corporate emissions management. For example a recent OECD report, Climate change disclosure in G20 countries: Stocktaking of corporate reporting schemes, found that most of the mandatory corporate emissions reporting schemes among G20 countries only require companies to report on direct greenhouse gas emissions produced within national boundaries, whereas significant volumes of emissions are often produced lower down on a company’s supply chain, and often in jurisdictions where that do not have reporting requirements. Likewise a survey conducted by CDP and Accenture in 2013 found that only 36% of 2,868 companies responding report emissions throughout their value chains (known as Scope 3 emissions) and only about 11% set either absolute or intensity Scope 3 targets.

Identifying risks is a primary element of due diligence and therefore the limited amount of supply chain reporting in this context is worrisome and suggests that currently companies are not collecting the information they need to effectively prevent and mitigate risks.

This is problematic not only with respect to the expectations of business to act responsibly but also because increasingly investors are seeing fossil fuel dependence as a systemic risk. For example, the CDP reports that currently 822 institutional investors request climate change disclosure from investee companies. Assets managed by these investors comprise up to a third of all global financial assets. However, this demand had not been reflected in generation of useful information. Research on the top 500 global asset owners found that only 7% of them are able to calculate their emissions, only 1.4% have reduced their carbon intensity since 2014, and none of them has yet calculated its portfolio-wide fossil fuel reserves exposure.

As of yet climate change due diligence has not been considered by the NCP network. However as corporate responsibility to mitigate against climate impacts becomes increasingly prominent, continued industry inaction could lead to a complaint being brought on this subject.

The upcoming two weeks will bring thousands of participants together to brainstorm solutions to perhaps the greatest global crisis facing us today. We hope that the event will prove to be historic and that the implications of corporate value chain approaches and due diligence will be adequately considered.

Useful links

OECD COP21

Municipal networks contribute to increased broadband coverage

Broadband networksBengt G Mölleryd, Senior Advisor, Swedish Post and Telecom Authority (PTS), written while on secondment to OECD Science, Technology and Innovation Directorate

Although OECD countries have made tremendous progress in recent years fostering the deployment of high-speed broadband networks, many challenges remain in terms of how to enhance and expand these networks in order to meet the growing demands of the digital economy. The availability of broadband networks is not only essential for people to participate in economic and social activities but to create opportunities for future gains in areas such as employment, education, health and improved civic engagement.

All this depends, however, on these networks being in place, connections being available at competitive prices and not limited by capacity constraints. In most places this demand is being met by the market but even in the most advanced countries gaps arise, such as in communities with sparse populations, or where there is insufficient competition due to the substantial cost of infrastructure deployment. In these instances, municipal networks, primarily fibre networks built, operated or financed by local governments, public bodies, utilities or co-operatives, are used in a number of OECD countries to provide service in towns, cities and regions.

A new report from the OECD examines experiences with municipal broadband networks in a number of countries including Australia, Denmark, Japan, Netherlands, New Zealand, the United Kingdom and the United States. Sweden, given its widespread use of municipal networks, is used as an anchor country for the analysis. The models and experience of the municipal networks in these countries have varied from being highly successful to not meeting expectations. In some cases, they have provided welcome competition by offering an alternative infrastructure or increased the geographical availability of advanced telecommunication services where none existed. Sometimes they have enabled retail competition by splitting the provision of infrastructure and services based on an open access approach. Proponents say they have contributed to cities and regions, as there are noticeable effects on social and economic developments in these locations, which the report explores.

Local governments, as well as their service providers and utilities, regard broadband networks as a way to build on their existing infrastructures in other areas such as energy provision, and improve community services in areas such as health and education. They underscore that the public sector can be a lead user of municipal networks, such as in the provision of more cost efficient home care services for the elderly, and say that the market has not moved to sufficiently provide this infrastructure. Others also regard broadband as not only enabling today’s commerce but in attracting new firms, start-ups and retaining young people and opportunities for them in these communities. In addition, they note that mobile providers take advantage of municipal network’s fibre, for the essential backhaul facilities wireless networks require, bringing forward new investment in such networks.

Nonetheless, given that extensive investment is required and that it is complex to deploy and manage high-speed broadband networks, there are substantial risks involved. This requires that the appropriate competence is in place for the organisational and financial capabilities required. Municipal networks can also raise competition issues as public money is involved in direct competition with the private sector or, in some cases, become a virtual monopoly for wholesale or retail capacity.

The report says that broadband speed matters, and that the available evidence indicates that these networks and the broader use of ICTs around them generate positive benefits, contribute to economic growth, and make firms more productive. Broadband networks can also be a substitute for some types of transport for smarter cities and contribute to the creation of new jobs and firms.

Overall, the report notes, municipal networks play a significant role in providing services for many people in OECD countries. As a result they are a viable and sometimes extremely effective way of supporting the objectives of local communities, addressing unmet demand and creating new opportunities for growth and prosperity in those communities, which otherwise would not be there.

Useful links

OECD work on broadband and telecom

PTS Innovation Competition: More active and rewarding leisure time

Unlinking minerals and conflict in the Eastern Congo

Due diligence mineralsHannah Koep-Andrieu of the OECD’s Responsible Business Conduct Unit (@H_KoepAndrieu)

The Dodd-Frank Act and its Section 1502 on conflict minerals adopted in 2010 obliges public companies in the United States (US) to undertake supply chain due diligence and report on products containing certain minerals that may be benefiting armed groups in the Democratic Republic of the Congo (DRC). The Act’s supporters celebrate that it finally holds companies sourcing minerals from conflict zones accountable, while critics claim that implementation of the law is cumbersome and expensive for companies and that singling out the DRC and adjoining countries created an effective embargo and is hurting local producing communities.

While both accounts hold some truth, as usual the reality is much more complicated.

To assess five years of work on responsible mineral supply chains in the Great Lakes region, the OECD worked with the International Peace Information Service (IPIS) to determine the impact in eastern DRC, the region most in the spotlight. Since 2009, IPIS collected data on security conditions at over 1100 mining sites in eastern DRC (North and South Kivu provinces, Maniema, northern Katanga and southeast Province Orientale) and published interactive maps showing armed group presence at mine sites.

More due diligence tools and positive results in 3T minerals

Since the launch of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas in 2011 the number of tools, regulations, initiatives, and programmes developed to foster responsible mineral sourcing and combat the illicit exploitation of minerals has dramatically evolved. The OECD Guidance is now referenced in domestic regulations, for example in the US, and the European Union (EU) is currently drafting a regulation that is based on the Guidance. As a result, as of 2016 the US and EU markets could both be covered by mandatory provisions requiring mineral supply chain due diligence on all imported products containing tin, tungsten and tantalum (3T) and gold. Hundreds of companies and industry initiatives across the supply chain now implement the OECD’s five-step due diligence framework to ensure they produce and source responsibly.

Companies are also beginning to understand that responsible trade of minerals from areas of conflict or high-risk is possible when carrying out due diligence. However, this wasn’t always the case. Disengagement from the DRC was indeed dramatic in 2010-2011, but this was due to a number of contributing factors: the DRC President banned the mining of affected minerals for almost a year; the US legislation was adopted; new consumer and political attention was given to the issue in the OECD, the UN Security Council, the G8 and elsewhere; and new market expectations for conflict-free minerals emerged. Exports fell for tungsten from peak years in 2007 when the DRC exported 1,200 tonnes to less than 50 tonnes in 2010. Since then, the market for minerals from the region without proof of due diligence has continued to shrink, while the market for traceable, responsibly-sourced minerals has grown, suggesting that due diligence implementation is shaping global metal demand. Traceable exports of 3T now fetch almost 30% higher prices, compared to non-traceable materials.

Responsible sourcing initiatives and the uptake of due diligence have also seen positive results on the ground; significant gains have for example been made in raising the volume of responsibly sourced 3T minerals from eastern DRC. The due diligence and traceability programme iTSCi saw an increase of traceable 3T exports from the DRC, Rwanda and Burundi from approximately 300 tonnes in 2010 to a peak of 19,500 tonnes in 2014. The first half of 2015 has seen lower exports of 7,800 tonnes, reflecting reduced incentives for miners as global commodity prices dropped. The percentage of 3T workers at mines affected by interference from non-state armed groups and public security forces dropped from 57% in 2009/10 to 26% in 2013/14 at sites visited by IPIS. This drop reflects both a cleaning up and contraction of the 3T sector in eastern DRC.

Interference at mining sites persists

While this uptake of due diligence is encouraging, interference of armed groups in mining areas continues to disrupt not only the livelihoods of well over 1 million miners and their communities but also fuels human rights violations and contributes to perpetual conflict financing. Artisanal and small-scale mining (ASM) in the DRC’s eastern provinces remains a central source of revenues for several hundred thousand people. IPIS figures suggest that more than 216,000 miners work in ASM in eastern DRC alone. In addition to direct employment, these miners each support about four to five community members.

While the news is better on 3Ts, gold remains a significant headache – in 2013/2014, four out of five artisanal miners in the eastern provinces were found to be working in the gold sector. This is partly the result of a tangible shift in production from 3T to gold since 2009. 2013/14 research also shows the strong significance of gold to conflict financing in eastern DRC, with a non-state armed group or public security force presence at 524 of around 850 gold mines (61%), compared to 59 of over 200 3T sites (27%). In terms of livelihoods and socio-economic impact, such shifts are difficult for miners and communities alike; at times gold rushes see thousands of miners migrate to a new site, stretching the already often severely limited infrastructure of rural communities in terms of access to land, water and basic housing and causing inter-communal tensions or even outright conflict.

Way ahead: Need for mining sector reforms

Companies are getting better at understanding and implementing supply chain due diligence, but governments have their role to play as well. In the context of attempts to improve governance in the sector, the advancement of mining reforms has been slow. A large majority of artisanal sites remain outside the legal trade as regulatory frameworks either stipulate that ASM is illegal or create prohibitive financial or administrative criteria for legalisation. For our work to have a real and lasting impact on the ground, formalisation, legalisation, regulatory reforms, access to land and the acknowledgement that ASM is an important rural livelihood are key; without policy change in those areas, it will be difficult to improve socio-economic and security conditions in fragile mining regions.

The OECD works to develop common understandings of due diligence standards to foster responsible business conduct, whether this is in minerals, garment and apparel, finance or agricultural supply chains. The aim of this work is not to single out regions or countries but to enable companies to carry out supply chain due diligence in all their operations globally in order to identify those areas and suppliers that carry the greatest risk of negative impacts, such as human rights abuses. Due diligence should be risk-based and progressive, meaning that companies should focus on those areas where risks are greatest and work towards a progressive improvement of due diligence practices.

Supporters and critics of the US Dodd Frank Act are both right – the challenges are enormous but there is room for optimism as the tools and initiatives to tackle the issues become increasingly widespread and refined.

Useful links

2015 International Workshop on Responsible Mineral Supply Chains, Beijing, China, 2-3 December
Hosted by the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters (CCCMC) and the OECD
The workshop will discuss the role of governments, industry associations, international partners, businesses, non-governmental organisations, and other stakeholders in promoting responsible mineral supply chains. The workshop will also launch the new Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains developed as a result of co-operation between between the CCCMC and the OECD. Participants can learn about what is expected from them to implement these guidelines and participate in a consultation on audit protocols related to these guidelines. Draft agenda

OECD Guidelines for Multinational Enterprises

Education at a Glance 2015: Look and learn!

EAG 2015Andreas Schleicher, Director, OECD Directorate for Education and Skills, co-published with educationtoday

Does education really pay off? Has public spending on education been affected by the economic crisis? How are education and employment related?

You’ll find the answers to these and just about any other question you may have about the state of education in the world today in Education at a Glance 2015: OECD Indicators, published today. Did you know, for example, that tertiary-educated adults earn about 60% more, on average, than adults with upper secondary as their highest level of educational attainment? Or that between 2010 and 2012, as countries’ GDP began to rise following the economic slowdown, public expenditure on education fell in more than one in three OECD countries?

This year’s edition of the annual compendium of education statistics includes more than 100 charts, 150 tables and links to another 150 tables on line. It also contains more detailed analyses of participation in early childhood and tertiary levels of education; data on the impact of skills on employment and earnings, gender differences in education and employment; educational and social mobility; adults’ ability and readiness to use information and communication technologies; how education is financed; and information on teachers, from their salaries and hours spent teaching to information on recess and breaks during the school day.

We invite you to take a good long look – and learn.

Key findings

Educational attainment

  • Around 85% of today’s young people will complete upper secondary education over their lifetimes. In all countries, young women are now more likely to do so than men. The largest gender gap is in Slovenia, where 95% of young women are expected to graduate from upper secondary, compared to only 76% of young men. (Indicator A2)
  • Around 41% of 25-34 year olds in OECD countries now have a university-level education. That proportion is 16 percentage points larger than of 55-64 year-olds who have attained a similar level of education. In many countries, this difference exceeds 20 percentage points. (Indictor A1)
  • The number of students enrolled outside their country of citizenship has risen dramatically, from 1.7 million worldwide in 1995 to more than 4.5 million (Indicator C4). Some 27% of students in OECD countries who graduated for the first time from a doctoral programme in 2013 were international students, compared to only 7% for students who were awarded a bachelor’s degree. (Indicator A3)
  • On average, 83% of tertiary-educated people are employed, compared with 74% of people with an upper secondary or post-secondary non-tertiary education and 56% of people with below upper-secondary education. (Indicator A5)

Education spending

  • OECD countries spend on average USD 10,220 per student per year from primary through tertiary education: USD 8,247 per primary student, USD 9,518 per secondary student, and USD 15,028 per tertiary student. (Indicator B1)
  • The share of private funding in tertiary education has increased over the past decade. About two thirds of private funding at tertiary level comes from households through tuition fees. Tuition fees are higher than USD 2000 in more than half of the countries with available data, exceed USD 4000 in Australia, Canada, Korea and New Zealand, USD 5000 in Japan and USD 8000 in the United Kingdom and United States. (Indicator B5)
  • OECD countries spent an average of 5.3% of GDP on primary to tertiary education in 2012 (including undistributed programmes by level of education). Public funding accounts for 83.5% of all spending on primary to tertiary educational institutions. Public spending on education fell in more than one out of three OECD countries between 2010 and 2012, including Australia, Canada, Estonia, France, Hungary, Italy, Portugal, Slovenia, Spain and the United States. (Indicators B2 and B3)

Early childhood education

  • In most OECD countries, education now begins for most children well before they are 5 years old. Some 74% of 3-year-olds are enrolled in education across the OECD and 80% of European Union member OECD countries. (Indicator C2)
  • Enrolments in pre-primary rose from 52% of 3-year-olds in 2005 to 72% in 2013, and from 69% of 4-year-olds to 85% in 2013. The enrolment rates of 4-year olds increased by 20 percentage points or more in Australia, Chile, Korea, Mexico, Poland, Russian Federation and Turkey between 2005 and 2013. (Indicator C2)
  • More than half of children enrolled in early childhood development programmes attend private institutions. This can result in heavy financial burdens for parents, even when government subsidies are provided. (Indicator C2)

In the classroom

  • Students receive an average of 7570 hours of compulsory education at primary and lower secondary level. Students in Denmark have the most, at over 10,000 hours, and in Hungary the least, at less than 6,000 hours.(Indicator D1)
  • The average primary class in OECD countries has 21 students and 24 at lower secondary level. The larger the class size, the less time teachers spend teaching and the more time they spend on keeping order in the classroom: one additional student added to an average-size class is associated with 0.5 percentage point decrease in time spent on teaching and learning. Indicator D2)
  • The statutory salaries of teachers with 15 years’ experience average USD 41,245 at primary level, USD 42,825 at lower secondary and USD 44,600 at upper secondary level. (Indicator D3)

“Ecological Footprint” leaving a trail at OECD

Something missing?
Something missing?

Suzi Tart, OECD Environment Directorate

Analytics data reveals that the most popular search term on the OECD website for 2015 is “BEPS”. This stands for “Base Erosion and Profit Shifting” and refers to the latest OECD tax project making a big splash the world over. The next four top searches, in order are: “ecological footprint”; “PISA”; “GDP”; and “tax haven”. One of these things is not like the others. That would be “ecological footprint,” which has caused several employees here at the Environment Directorate to do some proverbial head scratching. Unlike the other terms, the OECD has yet to explicitly publish anything on this topic.

Website analytics go on to show that most of the visitors who are searching for “ecological footprint” end up visiting the Household Consumption project. This project is unique in that it explores how national-level policies impact household behaviour. Topics include energy use, food consumption, personal transport choices, waste generation and recycling, and water consumption. Yet the project does not specifically discuss the term “ecological footprint,” and it retains a macro-policy focus, targeting governments interested in learning which policies to implement.

Perhaps the Household Consumption project is indeed the information website visitors are searching for. Or perhaps they are looking for data on the ecological footprints of countries—data that does not currently exist in one OECD report, but would be interesting to compile together for a special edition of Environment at a Glance. The OECD currently publishes per capita-level data on several ecological footprint indicators (for example: meat consumption, greenhouse gas emissions, material resource extraction and consumption, water withdrawal, and municipal waste, to name a few), and it could easily complement these with its national-level data on aspects such as passenger transport and intensity of forest use to provide an interesting perspective on the average ecological footprint of countries’ citizens.

Another possibility is that visitors are seeking more information relating to @OECD_ENV’s recent #WhatCanIdo social media campaign, or the #EnergyPulse posts by staff on Twitter. Yet another plausible presumption is that online searchers want information on the OECD’s own ecological footprint. Since 2010, an official [email protected] campaign has strived to reduce the organisation’s negative environmental impact. An environmental progress report by the campaign notes that while water and waste consumption levels have gone up over time, greenhouse gas emissions related to OECD buildings have dropped 65%.

Regardless of the reason OECD website visitors have been searching for the term “ecological footprint,” it is encouraging to see that more people are concerned about the environment and are looking for ways to lessen their impact at a personal level. It is, as one might say, a step in the right direction.

Searching for “ecological footprint”? Message us on Twitter @OECD_ENV to let us help you in your search!

Useful links

OECD on the road to COP21

Do lower taxes encourage investment?

Business-Finance-Outlook-ENPierre Poret, Deputy Director, OECD Directorate of Finance and Enterprise Affairs

Conventional wisdom holds that countries with lower taxes attract higher levels of foreign direct investment (FDI). At first glance, this intuitive assumption seems to be supported by the evidence. Some tiny jurisdictions with low or no taxes on foreign investment do seem to attract more FDI than major economies, but “investment” is the wrong term for billions of dollars that flow in and out of these places as part of the strategies multinationals use to pay less tax.

A new methodology for calculating FDI has been developed at the OECD to provide a clearer and fuller picture of FDI flows. Long time series of these new generation FDI statistics are not yet available. In the meantime, we analysed the financial statements of around 10,000 multinationals to model the relationships between their capital spending; rates of return; and tax holidays and exemptions, among other factors of investment. We found that tax holidays and exemptions do matter in investment decisions, but they are not the only factor and not necessarily the most important.

At the same time, governments around the world have become increasingly concerned with “double non-taxation”, i.e., companies not paying tax in either the country where they make their profits or the country where their headquarters are. Double non-taxation is one of the targets of the OECD/G20 project to counter tax base erosion and profit shifting (BEPS). Over 120 countries have participated in the project in recognition of the fact that a country trying to tackle BEPS on its own would probably lose out to more generous rivals. With the recent release of the final BEPS package, and the ongoing work on exchange of tax information, governments are well equipped to meet this challenge. However, governments also have three additional means at their disposal to prevent tax abuses without undermining investment.

Public governance of tax incentives according to internationally-agreed best practices. The new tax chapter of the OECD Policy Framework for Investment (PFI), used by dozens of countries and regions such as the South African Development Community and the Association of Southeast Asian Nations, provides multilaterally-agreed guidance to help countries avoid potential abuses of tax incentives and resist undue pressure to offer tax incentives. The PFI calls for incentives to be granted only following a proper legislative process. The PFI also provides guidance on the implementation and administration of tax policy regarding investment, for instance on making sure different levels of government are working together, addressing capacity constraints in tax offices, establishing criteria for analysing the costs and benefits of incentives, and providing for “sunset clauses” that say how long the agreement stays in force. This ultimately works in favour of the broader business community concerned with public sector transparency and a level playing field. As this issue is of particular relevance for developing countries, the OECD, in collaboration with the IMF and World Bank, has also developed Options for Low Income Countries’ Effective and Efficient Use of Tax Incentives for Investment.

Clarifying the degree of exposure of tax measures to investor claims under investment treaties. Many governments see investment treaties as a way to increase the investor confidence and long-term trust needed to encourage investment. However, there is concern that some investors and law firms are claiming that sovereign states who change tax regimes to phase out excessive advantages, or who enforce tax laws more energetically, are violating investment treaties and should pay compensation. Most investment treaties currently apply to tax measures, but to differing degrees. Some of these treaties – especially more recent ones – contain mechanisms that give the state parties the power to make joint determinations on individual tax measures, but these are still the exception: only 3.6% of the 2060 treaties in a sample the OECD analysed contain a clause of this kind related to tax measures. Other investment treaties limit the types of claims that can be brought against tax measures and permit, for example, only claims for expropriation.

Clarifying the scope of application of investment treaties to tax measures can help provide a more certain policy landscape for governments and investors. Under the legally binding OECD Code of Liberalisation of Capital Movements, certain tax measures can amount to a restriction to the free flow of capital and can fall within the scope of the Code. But the Code gives governments adequate policy space – for example, taxes that are not identically applied to residents and non-residents but are levied in accordance with widely accepted principles of international tax law, are not considered as a discriminatory restriction under the Code.

Violations of tax laws by investors may also be relevant to the application of investment treaties. This is because illegality of the initial investment is increasingly expressly recognised as a bar to treaty coverage and, for instance, the recently-negotiated Comprehensive Trade and Economic Agreement between the EU and Canada would limit the definition of investments to those made “in accordance with law”.

Communicating collectively to companies the expectation that they should obey not only the letter but also the spirit of tax law. The OECD Guidelines for Multinational Enterprises (the Guidelines), a set of recommendations to companies by OECD and non-OECD governments, call on enterprises to comply with both the letter and spirit of the tax laws and regulations of the countries in which they operate and not to seek or accept exemptions outside the statutory or regulatory framework related to taxation. Complying with the spirit of the law means discerning and following the intention of the legislature. Tax compliance also entails co-operation with tax authorities to provide them with the information they require to ensure an effective and equitable application of the tax laws. The Guidelines’ recommendation that enterprises should also treat tax governance and tax compliance as important elements of their oversight and broader risk management systems is reinforced by the recently revised Principles of Corporate Governance. Governments should increase their efforts to raise public awareness of the tax chapter of the Guidelines in support of their broader agenda to modernise and cooperate on tax policies.

Trade and FDI drive economic globalisation and help stimulate the growth of national economies. Fair and efficient tax systems are central to sharing the fruits of that growth equitably among nations and citizens. The challenge for governments is to put in place policies that attract investment and enable them to collect their fair share of taxes.

Useful links

OECD work on international investment