INTERVIEW: Rasmus Corlin Christensen

Rasmus Christensen is a political economist at the Copenhagen Business School, who focuses on the international political economy and international taxation. He has written several papers about global tax governance and how developing countries are represented in negotiations over tax policy. This includes the recent initiative at the United Nations to create an international tax body, and how that will challenge the Organization for Economic Cooperation and Development's traditional role in setting tax rules. We spoke on July 9.

You've written a lot about the dynamics between developing countries, the OECD, and I think a lot of people are wondering--is this thing with the U.N., is it just another example of the tension between the two organizations? Or is this really a turning point that's going to change the dynamics? I know you've written about it, I'm just kind of curious what your take is now that the process has started to to happen.

I think the answer is yes and no, in a sense. In one way the strengthening of the U.N.'s role in international tax matters, to me, is a continuation of a long, long, almost century-long fight between between developing and developed countries, about what sort of organizational structure, what sort of governance institutions do we have that structure the way international tax policy is made. And for a long, long time, the OECD has been the de facto international tax organization of the world. But the U.N. has always played a part, in one way or another. And that includes its predecessor, the League of Nations. There's always been this struggle, especially over the last few decades, with calls for more attention and more investment in the U.N.'s institutional scaffolding for its tax policy work.

So in that sense, there's a historical backdrop that just continues today. But there's also reasons to think that it's substantially different now, than it was 10, 20, 30, 40 years ago. And that has to do, in part, with the rising power of developing countries and emerging markets. The geopolitical balance of power has shifted quite a lot, just in terms of the raw economic and investment power of developing countries, and especially emerging markets, like China and India, who've been some of the front runners in calling for the strengthened role of the U.N. in international tax matters. That's definitely part of it.

But there's also something substantively new about the current process at the U.N., which is focused on developing this new framework convention. That is a different beast in terms of its organizational structure, in terms of how decisions are made, in terms of what countries are involved, than the previous U.N. tax committee, which was the focal point for a lot of the prior discussions about how the U.N.'s role could or should change international tax affairs. So in a sense it's just the latest installation of a very, very long historical fight. But in some ways, it's also very different, and I think it probably promises a greater likelihood of more significant change, away from the OECD, in the next few years.

One thing that I always wondered, and I think you've also written about this, does it really matter what the forum is? Or are these behind-the-scenes dynamics and diplomacy just going to play out the same way?

For me, and I think a lot of the research that I've tried to do and been involved in doing, tells us that the forum does matter. The way that rules are set, negotiated, the people in the room, who's there, that really does matter. It's not just one talking shop against another. Even if you do have many of the same people, many of the same countries, many of the same policy issues being discussed in the OECD and the U.N., the way that these things are discussed, and by whom, and with what decision rules and so on, it really does matter. For for a lot of different reasons. For reasons of what sort of political capital is invested in discussions, what sort of decision making procedures--are we talking about by consensus, majority, unanimity votes?--that all matters for the types of political games that can be played, which I think the current debate around the U.N. and the fact that we can have the process of the U.N. to develop a framework convention there around international tax cooperation is testament to.

But also just simple things like, what people can different countries send to the negotiations? Countries can send different people to the OECD than they can to the U.N., because they have different standings with governments. They have different resources available to them to support sending people and negotiators to Paris or to New York to negotiate. And that really makes a difference, who's in the room. That's one of the things I think is a key takeaway from the research that I've been involved in doing is that it really does matter a lot. What specific people are in the room and what their interpersonal skills are, what their technical expertise is, what sort of history they have with being involved in international tax affairs, that can make a huge difference for whether or not your government's positions are going to be taken into account.

That is a main criticism that developing countries have had with the OECD--that, ostensibly, they were involved with the Inclusive Framework, but they just weren't on equal footing in terms of the expertise. And that's really the big issue is the difference in the expertise, which I know you've also written about. Do you think that's changing with the rise of these continental organizations like the African Tax Administration Forum and others that developing countries are starting, to be able to bring more expertise to the table?

Absolutely. No question about it. That's one of the reasons, not just because of the game-changing geopolitical power markets and so on, but to a significant degree that increased attention that's being paid to developing country interests, and power they're able to exercise in international tax politics, has a lot to do with has increased investments in technical expertise. Being able to send a strong contingent of technically-proficient, language-proficient proficient, OECD-proficient people who have the right skills, who have the right networks, and were able to go consistently, and make their case in an authoritative way. That matters massively. And you can see some excellent examples in the people that have been involved over the last few years, for instance from the African Tax Administration Forum, in the OECD processes. You can see some of the higher-profile names who are now involved in the Inclusive Framework Steering Group. Those are people who have been involved now with the OECD for years and years, and they're respected by their peers, including those from OECD countries. And they're able to speak with a different weight, their words are taken much more seriously. And they're able to impress their voice on the negotiations, much more than they might have been able to do five, eight, 10 years ago.

Interesting. I wonder how much the pandemic changed this, the fact that they were doing so much of the negotiations by telework, and maybe that put developing countries at an advantage or disadvantage?

That's a really good question, because in some ways, I think the pandemic has democratized participation in international tax negotiations, because the use of online meetings and so on has been so much more normalized. And that has technically, logistically, practically provided much greater availability for countries to participate. But on the other hand, being in an online meeting is far from the same as actually making an impact when you're talking to your peers. And one thing we know, especially in international tax negotiations, it matters a lot. What happens when you're in the room, when you're in the coffee breaks, when you're talking to your peers, the rapport you have with your colleagues, the fact that you're able to be in Paris, on site, and have dinner with your fellow delegates, that makes a huge difference. So in one way, the pandemic was helpful in providing more access for some countries who maybe didn't have the resources to send negotiators to Paris all the time. But on the other hand, it didn't help that it put people geographically physically further apart.

In terms of policies, sometimes you wonder, are the OECD policies really so tilted towards developed countries? They've been trying to show that they really are taking developing countries interests into into account. What is the policy difference here?

In one way, there's a historical legacy, where it's clear that from the outset, the early 20th century years when the international tax system was being designed, it was being designed heavily favoring residence countries, which today are the big OECD countries that we know.

On the other hand, I think people sometimes underestimate the impact that developing countries have had over the last few years on the way that international tax policy is made, and also some substantive policy outcomes. We tend to think that it's just the same old OECD countries, and nothing has really changed. That's one of my pet peeves, that I think a lot of observers are overly critical, or in denial of change that's actually happening. Even if it's what appears to be more marginal change. I think you can clearly see that developing countries are are making an impact on substantial policy things that matter to them. You can see something like Pillar One, for instance, as being clearly something that is tangential to a lot of developing country interests. But the role of market-based taxation, this nation-based taxation has become more and more important in international tax policy circles and ideas about formulary apportionment or formulaic approaches to allocating taxing rights in the international tax system, those are broad ideas that have also taken hold. They're not just developing country ideas, but to some extent, they do stem from a strong voice that's being exerted by clusters of developing countries who also want more and more market-based, destination-based taxation. So I think both in terms of specific, smaller policy issues, but also in terms of some of the bigger kind of political struggles and philosophies, changes of direction in the international tax system, those are clearly influenced by developing countries today.

Part of the issue is that developing countries don't all have the same interests–we group them together, but they don't necessarily speak with one voice. And I wonder if maybe they're starting to coalesce and agree, or if maybe as they get more involved, they're noticing more their disagreements more?

From a helicopter perspective, the way that people often talk about some of these big fault lines and international tax negotiations as being between developed countries and developing countries. But in reality, on many substantial policy issues, the dividing lines aren't so clear. The taxation of the digital economy is one of my favorite examples of this, where you might think that it's purely a clash between classic developed OECD countries and developing countries in Africa and Latin America, and so on. But in reality, you think about some of the kind of key players in those discussions, you could think that, for instance, the U.S. and China, which have historically wanted very different things, from the international tax system, are in many ways on the same page in preferring less taxation of large digital firms, because most of the largest digital firms in the world are resident in the U.S. or in China. So those are not classic developed/developing country fault lines. And on the other end, you could say that some of the primary proponents for more digital taxation has been countries like France and India, who might also have historically been on opposite sides on many questions related to international tax affairs. But those are both countries that have advocated for more source or market-based or destination-based taxation of the digital economy. So you can't necessarily say that, on some of these big issues, it's just developed against developing countries, because when you look under the hood, there's a lot more nuance to it.

Contact the author at amparkerdc@gmail.com.