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International Taxation Conference


June 6, 2006

Lunch Speech by Hal Hicks


Thanks for the kind introduction.  It is a pleasure to be here and be the lunch speaker.  ONLY sorry the first 20 speakers Jeffrey contacted were unavailable!

Interesting date -- 6th day of 6th month of the 6th year of this century (6/6/6).  The sign of the Devil!  Not sure what Jeffrey and the OECD are implying by having me as the speaker on this date!  But this day only happens once a century.  Jeffrey gave the lunch speech last century (in 1906), so I will take this one! 

Thought I would talk today about the OECD and its roles and functions -- from the U.S. Treasury’s standpoint. 

OECD and Treasury Generally

A key change for me in moving from ACCI to ITC is the extent of my interaction with the OECD.  The ITC and the ITC group are the principal U.S. tax contacts with the OECD and the CFA.  In my old job I heard a great deal of talk from ACCI folks engaged in the various “working parties.”  Len Terr, a former ITC, has said the phrase “working parties” is a bit of an oxymoron.  But I have seen first hand the emphasis here is on “working.”  Take it from an old fraternity guy -- these sessions are not like any parties I used to go to!

ITC personnel have a role on all the major working groups.  They also chair some of these groups.  As ITC I am not only a delegate to the CFA but a member of the “Bureau” that directs the tax work of the CFA. 

We are fortunate to have so many good folks working at the OECD.  To mention just a few.  My friend Paolo Ciocca from Italy is the new Chair of the CFA and will provide valuable leadership.  Jeffrey Owens as the director of the OECD tax program is a force of nature and a strong advocate for effective and needed tax policy changes.  And, my friend Mary Bennett was a tremendous addition to their team.

The OECD, in turn, is lucky to have the efforts of the wonderful folks at ITC (including Tricia Brown, John Harrington, Andy Froberg, David Ernick etc.) and the OTP economists (including Henry Louie and Mike McDonald).  The OECD is also fortunate (as are the Treasury folks) to have so much assistance from the folks at ACCI.  Their legal expertise, drive, and judgment are invaluable. 

OECD and U.S. Government Interests

I feel very strongly about the work that the OECD performs.  I believe this work enhances and promotes vested U.S. governmental and business interests.  I believe the OECD’s detractors are in many cases misinformed or misguided in their views.  In some cases, I think some of those detractors are deliberately misrepresenting the OECD’s missions and goals. 

In many ways I view the OECD like I did the APA program.   I take a great deal of pride in the accomplishments of the OECD, but like APA, my three sons, most organizations and certainly me -- there are ways to make it better.  I will discuss both. 

What the OECD does extraordinarily well -- better than any other international organization I know -- are matters relating to broad standard setting, tax policy, transfer pricing, and economic studies.  This is truly the OECD’s and CFA’s forte -- and they bring tremendous value to all their members (and to many non-members). 

  • The OECD also provides an excellent forum for the U.S. to discuss ideas and emerging issues with many of our major treaty and trading partners. 
  • The U.S. in many ways prefers bilateral discussions with our treaty and trading partners.  But there are situations -- ever increasing it seems -- when a multilateral forum can be as good or better an avenue for discussions and problem resolution.  
  • The OECD is certainly the preferred multilateral forum for the United States.  A major initiative of the OECD has been the drive to bring new parties to the table -- China, India, and other important developing countries.  This is an effort the U.S. has applauded and supported.  It not only expands the reach of the OECD, but brings in new ideas and emerging issues and extends the ability of the U.S. to take advantage of this multilateral forum. 

The OECD and the U.S. have what is in my view a very beneficial “push-pull” interaction on certain tax issues.  This can be seen in developments over the years of a number of areas -- especially the OECD and U.S. “Model” Treaties, transfer pricing guidance, the focus on exchange of information and transparency etc. 

  • In many cases the U.S. is at the forefront leading tax change.  But in many other cases it is the OECD leading the charge. 

Focus on Specific OECD Projects of Core Competence

OECD Model Treaty

The OECD Model Treaty is certainly a very influential treaty tool.  The provisions and accompanying commentary are regularly scrutinized and relied upon in bilateral negotiations.  Unlike many other OECD Members, the U.S. has always published its own model treaty.  The last one came out in 1996.  We expect to put out a revised Model (and TE) this year. 

This is a classic example of the “push-pull” tension between the OECD and the U.S. that has been productive over the years.  The OECD Model has certainly been influenced by U.S. treaty developments over time.  But the reverse has also been true -- the new U.S. Model will reflect a number of OECD driven developments. 

OECD’s leadership in treaty policy and developments have been consistent with U.S. tax policy objectives – LOB provision, exchange of information provisions, MAP provisions, just to name a few.  This is an area that the OECD deals with extremely well.

Exchange of Information /Transparency

A component of the OECD treaty program and a matter of critical and fundamental importance to the U.S. is the OECD’s leadership in the area of exchange of information and transparency.  The policy objections of the OECD and the U.S. are entirely consistent in this regard.  Another example of the beneficial “push-pull” relationship. 

Robust Exchange of Information provisions are a bedrock principle of U.S. treaty policy – and has been for years.  It also forms the foundation for the growing network of TIEAs the United States has negotiated with non-treaty countries. 

There are, however, special interest groups that argue that the United States is underwriting an organization dedicated to bureaucracy and high tax rates.  Let’s examine some facts. 

  • The United States is and will continue to be a significant participant in the OECD.  But it is an organization of 30 sovereign countries that work on a consensus basis (more on that later).  So it generally reflects the broad views of a number of countries. 
  • It is thrown around that the US funds 23% of the OECD’s budget.  That is a little misleading.  It funds 23% of the mandatory contributions of the members.  But those contributions account for less than 40% of the OECD budget.  The remainder comes from voluntary contributions by members (of which the United States is not a major participant).  The voluntary contribution path seems to be increasing.  Also starting to see some activities -- like the Collective Investment Vehicles project -- that may be funded by non-members or industry groups.  
  • Finally, and most importantly, neither the OECD nor the United States are dedicated to promoting bureaucracy or high tax rates.  The OECD and the United States are, instead, very interested in promoting robust exchange of information and transparency.  The best means to keep tax rates as low as possible is to actually collect the taxes that are due and payable.  exchange of information is critical in this regard – helps assure the enforcement of the tax laws.  The OECD’s leadership in this regarded are fundamentally consistent with basic US tax principles.  More and more OECD countries, non-OECD countries, and offshore financial centers are coming on line with respect to exchange of information.  Perhaps certain of the special interest groups -- while not willing to say this directly -- are more interested in slowing that progress down. 

Improved Mutual Agreement Procedures; Arbitration

The OECD has had a major project focused on improving the MAP process.  A key part of this is an arbitration provision.  The OECD position on this is not finalized so it is too early for me to speculate on any specific points. 

But I will say that the US strongly supports the planned improvements in the MAP process and the use of arbitration.  The US business community also supports this.  Arbitration -- both the judicial model and so-called “baseball” model – can be important tools for enhancing the Competent Authority process, by bringing another mechanism to bear to revolve disputes. 

No one believes that double taxation is good policy.  But in a world of disparate tax systems, overlapping disputes frequently arise.  An improved MAP process is critical to making sure that taxpayers don’t inappropriately bear the cost of disputes between countries.  And, arbitration will be a key tool in minimizing double taxation.  The theoretical goal of course is to eliminate completely all double tax, but the practical reality is to create mechanisms for minimize it to the greatest extent possible.  Believe we will see arbitration provisions become a basic principle in future US treaty negotiations.   As reported recently, a baseball type arbitration provision is included in the recently signed US-Germany protocol. 

PE Attribution Project

This is another major project that the OECD has been working on for some time.  Will not repeat things discussed on yesterday’s panel, but will say this remains one of the highest profile projects that the OECD is working on.

The OECD work in this area will be reflected in (but will not necessarily dictate) US guidance to come in 882-5 and Global Dealing regulations.

Transfer Pricing

Transfer pricing has been one of the core activities of the OECD.  The working party is focused on comparability issues, pricing methodologies, and of course the PE attribution project.  The economic studies conducted by the OECD are of critical importance in this area. 

This is another example of the beneficial “push-pull” relationship between the United States and the OECD.  It reflects a core competency of the OECD.  The OECD transfer pricing work is reflected in major 482 guidance in the US, including Cost Sharing and Services regulations.  And, the United States is certainly a leading voice in the transfer pricing. 

Other Matters

There are numerous other projects of the OECD that the United States supports and that are consistent with fundamental US tax policy principles.  Among others are the VAT and similar work done by WP9.  The United States of course is the only OECD member without a VAT.  Yet the work of the OECD here in terms of standard setting and tax policy is vital to US interests.  US taxpayers and MNCs are subject to significant VAT and related tax exposures in their global operations. 

Another project is targeted tax reform.  A new project of which there is significant US interest is corporate tax reform.  Will be discussing this in upcoming meetings.

Yet another project is the Collective Investment Vehicles project – dealing with the tax treatment of mutual funds and similar vehicles.  I was fortunate to attend one of the kick off meetings for this project following the CFA meeting in January.  It was a very frank and honest discussion.  Due to budgetary constraints it is possible this project could be funded by industry groups.  Will need the appropriate firewalls to protect the integrity of the project.  Will also need the right person to head it.  If, as I would expect, the right person is put in this position, this will not be an issue.  This is a very important project and one that is typical of the type of project that the OECD is perfectly situated to deal with.  The goal of course is to achieve reasonable tax “neutrality” for investors so that they can enjoy the same basic tax positions whether they invest or invest indirectly through a fund.  There are numerous issues to be explored. 

Areas for Concern/Monitoring


As I said before I have great respect for the goals and worth of the OECD.  I believe it is supportive in many ways of fundamental US tax policies.  But I believe the OECD can work even better.

There are at least two specific areas of concern from my stand point.  These are concerns that are often inherent in government based programs.  I know they are issues like those in our own tax guidance program.

The issues in my view are (1) timing of completion of projects and (2) scope and range of activities undertaken.  I believe these raise meaningful concerns for the OECD.  I also believe the OECD is fully capable of dealing with these issues effectively and efficiently. 

Completion of Projects

This is a concern for any governmental organization.  It is certainly a concern for a large organization of 30 member sovereign countries that work largely on a consensus basis.  This is not a dictatorship.  Consensus must be built. 

The clearest example of this area is the PE Attribution Project.  This is, as I have said, a very high profile project.  It is also a project that is years in the works.  Major reports were put out a few years ago and extensive comments were made.  The project has raised substantial issues -- many based on misunderstandings of the reports, many based on actual reports of tax authorities’ aggressive application -- or misapplication  -- of the report. 

A great deal of valuable work has been done to resolve the situation.  But that work has not been made public yet because the reports have still not been released.  I believe that in important ways the credibility of the OECD and the CFA are at stake because of delays in this project. 
We are going to discuss the project in depth at the Bureau and CFA meetings at the end of the month.  I challenge myself and the other CFA delegates to work with tax leadership to bring this project to conclusion in a timely manner.  The issues involved in this project are enormously complex.  A lot of great minds have been working on this for some time.  There IS NO SILVER BULLET here!  Consensus cannot be held hostage to fine points, parochial interests, and a drive for perfection.  We need to reach a “working” consensus -- something less than full and complete agreement on all points -- by means of principled and considered compromise. 

  • As I said I believe the organization’s credibility is at stake here.  But I believe we will rise to the challenge and put the reports back out in draft this year with plans to finalize them in early 2007. 

Range of Activities

This is also a concern for any governmental organization.  Never appreciated this from private practice, but do now in the government.  You have a real chance to effect change so it is tempting to add more and more activities and projects.

In my view the OECD runs the risk of falling into this trap.  As I said at the start there are many things the OECD does extremely well -- standard setting, tax policy, transfer pricing, economic studies etc.  New activities can be of critical importance as well -- like the new Collective Investment Vehicle project. 

But especially in times of budgetary constraints I feel the OECD should stay as close as possible to its core competencies -- largely tax policy -- that it does better than anyone.  To me at least projects such as the Forum on Tax Administration and broad scale efforts at fundamental tax reform for particular members (as opposed to targeted matters like corporate tax reform) -- while certainly worthwhile on a theoretical basis -- have the potential for draining resources and blurring the organization’s focus. 

This concern over the range and scope of activities concern will become a greater issue in my view as the OECD drives to add new member states.  The addition of new members is something that United States strongly supports.  But if the range of activities is not subject to sufficient control the addition of new members may actually make it more difficult for the organization to reach a needed consensus on particular matters. 

Again I believe the OECD will exercise the needed discipline.


Has been a pleasure and privilege to talk to this group today.  I greatly enjoy the OECD work that comes with my job.  I believe strongly in the organization’s mission and goals.  I believe they are consistent with and supportive of fundamental tax policy objectives of the United States. 

I believe the US gov’t and the business community derive a great deal of benefit from involvement in the OECD, as I believe that the OECD derives great benefit from US involvement in their programs.

There are ways the organization can improve.  There are challenges that the OECD and its members will face.  I am an optimist by nature, but I honestly believe we will successfully meet those challenges. 

Thank you. 



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