draining development.pdf - Khazar University

248 Draining Development?resource-dependent economies that tend to have a large proportion ofnational production under the control of MNEs.Currently, the centerpiece of international tax coordination is thebilateral tax treaty, which provides for specific tax treatment for taxpayershaving sources of income in both countries and, possibly, crossbordertransactions and generally includes certain obligations in terms ofinformation sharing. Some of the key objectives for entering into such atreaty are the reduction of barriers to trade and investment, the reductionof double taxation (under the principle that the same source ofincome should only be taxed once), and elimination of tax evasion(including through information sharing). By specifying the tax treatmentof certain transactions and instituting mechanisms for disputeresolution, tax treaties generally improve certainty for taxpayers and taxauthorities. Under these treaties, specific mutual agreement proceduresare used to resolve international tax grievances, including double taxationissues arising out of a transfer pricing transaction. The governmentagency responsible for implementing these dispute resolution procedures(and negotiating with other national tax authorities) is the competentauthority of the country, which has the power to bind its governmentin specific cases.While the network of tax treaties is fairly extensive among OECDcountries, most developing countries have relatively few tax treaties inplace. This severely restricts the ability of their tax authorities to shareinformation and coordinate enforcement across borders. In addition,while internationally consistent transfer pricing regulations have beenalmost universally adopted throughout the OECD, relatively few developingcountries have specific transfer pricing regulations. This helps toexplain the recourse in some developing countries to specific arrangementsfor individual projects and individual MNEs (through, for example,individually negotiated production-sharing contracts, which effectivelylay out a complete legal, tax, and customs regime specific toindividual projects), although, given the general lack of negotiatingcapacity and sector-specific expertise, it would seem more appropriateto lay out one general regime by which all related projects would abide.However, the practice of bilateral company-by-company negotiationsraises the level of influence of specific bureaucrats and politicians. Thissituation often leads to practices that are judged as corrupt in OECD