G20 Chengdu High-Level Tax Symposium - remarks at session 2: Increasing tax certainty to promote investment and trade in a world where value creation is changing
Opening remarks by Angel Gurría,
23 July 2016
Ministers, Governors, distinguished guests,
Thank you for joining us for what promises to be an exciting and forward-looking discussion this morning, about how we can promote trade and investment by increasing tax certainty.
As we highlighted in the BEPS Project, value creation is fundamentally changing and new technology and new business models are affecting the nature and structure of the global economy. Cross-border trade and investment offer new opportunities, but can also create new risks where tax policies of different governments are not well designed and coordinated and where these policies are not implemented and administered in a consistent fashion.
As policy-makers, we know that uncertainty negatively affects investment and consequently, productivity – putting the brakes on growth. It increases the cost of capital by raising the risk premium. Removing that uncertainty can be more important to investors than more obvious, headline issues such as the tax rate.
At the same time, we need to put the focus not just on more investment, but better investment. OECD analysis on 10000 multinationals has found that tax holidays and exemptions do matter in foreign direct investment decisions, but they are not the only factor, and not necessarily the most important.
Updated in 2015, 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. We’ve established criteria to help countries analyse the costs and benefits of incentives. This ultimately works in favour of the broader business community concerned with ensuring a sustainable, transparent business environment and a level playing field.
Our challenge, therefore, is to design tax policies to enhance tax certainty. At the heart of this challenge is the need to understand the sources of tax uncertainty, as well as identify what strategies and specific approaches are the most effective in increasing tax certainty.
The sources of uncertainty stemming from our tax systems are varied, capable of arising at many points in the chain - from tax policy design to enforcement and administration of the rules. Complexity, lack of clarity, inconsistency and frequency of changes have all been cited as ways in which tax policy can affect both existing and future investments.
How can we – in our domestic efforts and through greater international cooperation – provide the tax certainty needed to encourage trade and investment?
I would like to begin the discussion this morning, with a question to our panellists, to find out whether your countries have experienced any of the impacts of tax uncertainty, and whether you can share your ideas about what governments can do to improve tax certainty at the domestic and international level? – Minister Schäuble, can I start with you.
Thank you very much.