(...)Global tax challenges require global co-operation and action in order to find global solutions. Multinational enterprises have been quick to develop worldwide tax strategies. It is essential that national tax administrations do the same. The OECD and economies outside the OECD need to develop a mutual understanding of each other’s approaches -- of our similarities and of our differences. That will help us to share our experiences and skills as the first step in developing common solutions for our common problems. (...)

Deputy Secretary-General of the OECD

I would like to extend a warm welcome to all who have made the journey to Cebu to participate in the second joint APEC/OECD Symposium on International Business Taxation. I am particularly pleased to see so many participants from the APEC Member countries. A special thanks is owed to Under-secretary Guevara and her colleagues in the Philippines Ministry of Finance who have worked so hard to make this symposium a success. I also want to thank Finance Secretary Espiritu for making the effort to join us at this important event, despite a very busy schedule in Manila.

For those of you who are not familiar with the OECD, let me take just a moment to tell you a bit about the Organisation.

The OECD is the living legacy of the Marshall Plan -- aid given after World War II to help the economies of Europe rebuild after the devastation they had experienced. The underlying premise of the Marshall Plan and of the OECD was that the best way to ensure economic stability and growth is to build enduring linkages and co-operation among economies and societies. That is a legacy that we have carried with us up to the present time.

The OECD now has 29 Member countries -- in Europe, Asia and North America -- and we place a strong emphasis on providing a forum where governments can share their experiences and learn from each others’ successes -- and failures. As part of its role, the OECD offers advice and makes recommendations to Members in a wide range of policy areas. We also work -- through our members -- to establish legal codes and binding guidelines and models in certain areas. Tax policy is an important element of our work in all of these aspects -- including in our work with many non-OECD economies.

For us at the OECD, this meeting is an important opportunity to share with you our experiences and to consider -- together -- some of the most difficult international challenges facing tax administrations.

Globalisation brings benefits, in terms of increased global economic wealth; but as Secretary Espiritu has noted, it also poses some serious challenges. The spread of financial instability from the Asian region to the rest of the global economy has been a painful reminder to us all of the need to ensure that government policies keep up to speed with the rapid pace of developments in the business world, especially in the financial sector. Taxation is a key public policy issue, and it is therefore important that tax policies are addressed as part of the ongoing review of government polices. This message is addressed as much to OECD countries as to countries outside of the OECD area.

This Symposium for which you are gathered addresses some of the most important tax challenges, both at a policy and a technical level. The focus is on four key topics: electronic commerce; harmful tax competition; transfer pricing and financial innovation.

II. Globalisation and Taxation: The Challenges Introduction

Secretary Espiritu has outlined the increasingly global nature of economic and business transactions. As a result of these trends, governments today are seeking even greater international co-operation to ensure that their domestic tax systems work in the way intended. It has also become more urgent than ever to develop tax standards upon which countries around the world can agree and rely. The OECD’s Committee on Fiscal Affairs (the main tax body of the Organisation) has been able to start that process within the OECD. However, an equally important part of the process for the development of common approaches and standards is the exchange of opinions and experiences with representatives of economies outside the OECD. This joint OECD - APEC meeting offers us a unique opportunity to share our experiences on how international standards might develop. We very much look forward to hearing your views and suggestions for action.

I will now turn briefly to the four main themes of the symposium, before moving on to discuss how the partnership between the OECD and economies outside the OECD can be deepened.

Electronic commerce

The first theme we will be discussing is that of electronic commerce. It is generally accepted that neutrality should be a guiding principle for the taxation of Internet electronic commerce. During our Ministerial conference on electronic commerce in Ottawa last month, at which we had 11 non-Member economies, an important step forward was taken, with the agreement on taxation framework conditions. The guiding concept is that electronic commerce should be subject to existing taxes to the same extent as conventional commerce. The OECD has now embarked on the task of implementing these general framework conditions to ensure that tax rules for the digital world are developed in a co-operative and internationally consistent manner. Close co-operation with the private sector and economies outside of the OECD area is an indispensable part of the process. We will hear more on this topic in a few moments from Joe Guttentag of the US Treasury Department.

Harmful Tax Competition

Turning to our second topic, in May of this year, the OECD issued a set of recommendations to counter harmful tax practices.

We recognise that globalisation has positive effects when it encourages countries to take account of the tax practices and levels of taxation of other comparable countries so as to avoid maintaining punitive systems or rates. We also recognise that countries may want to provide different levels of public services, and that their public expenditures reflect differing policy priorities and levels of development, among other things.

Our work in this area is not aimed at tax harmonisation or the establishment of minimum tax rates. Rather, our work is aimed at "beggar thy neighbour" types of policies, particularly cases in which one country designs its tax system to target the tax base of another country. As any driver will recognise, a road full of holes is as bad as a road full of bumps; both must be eliminated if you want traffic to move properly. So our work on harmful tax competition is in fact a corollary to the work that we have done, and will continue to do, on preventing double taxation. All of the economies around this table have been affected by the spread of tax havens. We at the OECD would like to join with you to see what can be done to counter such harmful tax practices. Mr. Taniguchi of Japan will talk in more detail on this topic later this morning.

Transfer pricing

Another important topic that will be discussed in this symposium is that of transfer pricing. The OECD has long promoted policies aimed at ensuring freer flows of trade and investment, a phenomenon which has brought unprecedented growth and prosperity to economies and people around the world over the past fifty years. This is why we have spent so much time and effort since our founding as an Organisation in 1961 to prevent double taxation, which we all recognise as an obstacle to the free movement of personnel, goods, services and capital. It is also important that in addition to eliminating double taxation, governments are able to ensure that global businesses pay their fair share of tax.

An estimated 60% of world trade in goods and services takes place within multinational enterprises. This high level of intra-firm trade raises the challenge of transfer pricing, that is, how to determine whether the prices charged within a company are the same as for comparable transfers between independent parties. The response of the OECD to this challenge resulted in the revised OECD Transfer Pricing Guidelines, issued in 1995. We will be looking in detail at this topic in Parallel Working Session No. 1.

Financial Innovation

The final topic of our symposium is again issue referred to by Secretary Espiritu -- and that is, how to design tax policies to cope with financial innovation in a global economy. Recent events in Asia, Latin America and Russia have demonstrated how quickly the loss of confidence and financial instability in one part of the global economy can be transmitted to the rest. We all need to look at how our polices cope with global financial markets and flows of capital. Such flows, although generally beneficial, can expose structural and regulatory weaknesses in domestic economies, particularly in the financial sector. Governments need to correct those weaknesses, and tax policy can play an important role in that process

We will focus on three main areas. First, the encouragement of stable and longer-term capital inflows. Second, the use of innovative financial instruments to lower the cost of capital and promote prudent risk management. Third, how tax policy can support the development of sound financial institutions, together with strong, orderly and transparent financial and capital markets. We will be looking in more detail at this topic in Parallel Working Session No. 2.

III. The Need for a Global Partnership

Global tax challenges require global co-operation and action in order to find global solutions. Multinational enterprises have been quick to develop worldwide tax strategies. It is essential that national tax administrations do the same. The OECD and economies outside the OECD need to develop a mutual understanding of each other’s approaches -- of our similarities and of our differences. That will help us to share our experiences and skills as the first step in developing common solutions for our common problems.

The OECD’s Committee on Fiscal Affairs recognises the need for dialogue and has developed a number of different means by which such dialogue can take place. This reflects the varying requirements of economies outside the OECD. It is fair to say that 10 years ago the focus of the OECD was very much on its members. The collapse of the Soviet Union gave us a "wake up" call, and the OECD responded by providing a programme to assist affected countries in their transition to a market economy. This work is still going on and is carried out in the form of a policy dialogue, both in specialised multilateral tax centres and in-country; through regional programmes to improve the efficiency of national tax training; and through multilateral workshops on specific issues of the reform of tax administration.

More recently, the OECD has focused its efforts not just on the countries in transition but on the emerging market economies, especially in Asia and Latin America. A number of different fora are being used for this dialogue. We were pleased last year to open our first multilateral tax centre outside of Europe -- in Korea -- which is now used for our multilateral tax programme for the Asian region. Beginning in 1996, the Committee on Fiscal Affairs has organised annual meetings that allow experts from economies both inside and outside the OECD to discuss international tax issues. To date, the focus has been on the negotiation, application and interpretation of tax treaties. We are also very pleased that economies outside the OECD are now setting out their positions on the OECD Model Tax Convention.

The OECD also places importance on our work with regional bodies. For Latin America, we have worked extensively with the Inter-American Centre of Tax Administrations (CIAT), particularly on transfer pricing. Similarly with harmful tax competition, several regional meetings have been organised to discuss jointly the problems arising and possible solutions. In the Asian region, we are especially pleased to have APEC as our partner and to have the opportunity to follow up on the success of the first Joint APEC/OECD symposium in Sydney, of which I continue to have fond memories.

Despite this active dialogue with economies outside the OECD area, we are conscious of the need to move towards a true partnership. We believe we have a proven strength in providing technical expertise in a number of areas, particularly those where the OECD has taken a pioneering role in setting international rules of the game. We would like to involve the APEC economies more in the process by which these rules are set; although I am realistic enough to know that there are practical and political constraints on both sides.

Yet it is clear to me that the development of global solutions to global problems cannot succeed without a strong partnership between the economies within the OECD and the economies outside the OECD. There is an old saying which says that a problem shared is a problem halved. Symposia like this one, together with relationships such as the one between the OECD and APEC, are vital parts of that partnership.