Current Affairs 2023
The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental organization founded in 1961 to stimulate economic progress and world trade. With 38 member countries, it provides a platform for comparing policy experiences, seeking answers to common problems, identifying good practices, and coordinating domestic and international policies. The OECD is recognized as a highly influential publisher of mostly economic data and sets rules governing international taxation for multinationals.
Apr 04, 2023
3 min read
The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental organization with 38 member countries that was founded in 1961. The majority of OECD members are high-income economies with a very high Human Development Index (HDI), and are regarded as developed countries. The organization serves as a platform to compare policy experiences, seek answers to common problems, identify good practices, and coordinate domestic and international policies of its members.
The OECD's headquarters are at the Château de la Muette in Paris, France. The organization is funded by contributions from member countries at varying rates and had a total budget of €338.3 million in 2023. It is recognized as a highly influential publisher of mostly economic data through publications as well as annual evaluations and rankings of member countries.
One of the primary functions of the OECD is to set the rules governing international taxation for multinationals through the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, a Model Tax Convention, and country-by-country reporting rules. The organization publishes and updates a model tax convention that serves as a template for allocating taxation rights between countries. This model is accompanied by a set of commentaries that reflect OECD-level interpretation of the content of the model convention provisions.
The OECD has also proposed Pillar 1 and Pillar 2 policies that aim to allocate multinational profits (for taxing purposes) to countries where they do business, by a formula, including to markets which multinationals sell into without a physical presence. The proposals include allocating only residual profit, which is essentially no change to what is currently allowed (routine profits allocated using transfer pricing + residual profits allocated through profit split). On 1 July 2021, finance officials from 130 countries agreed on plans for a new international taxation policy known as the global minimum corporate tax (of 15%). If a country taxes a multinational at a lower rate, the multinational's HQ will receive the difference.
The OECD Guidelines for Multinational Enterprises are a set of legally non-binding guidelines attached as an annex to the OECD Declaration on International Investment and Multinational Enterprises. They provide principles and standards for responsible business conduct for multinational corporations operating in or from countries adhering to the Declaration.
In addition to its work on taxation and multinational corporations, the OECD also works on issues related to bid rigging in the context of public procurement. The organization provides guidelines for fighting this practice and has noted the importance of programs to systematically combat bid rigging.
Overall, the OECD plays a critical role in shaping economic policy and practices among its member countries, as well as providing a platform for coordination and collaboration on issues of common interest. Through its work on taxation, multinational corporations, and bid rigging, the organization has a significant impact on the global economy and strives to promote responsible business practices and economic progress.
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