Analyzing The Constraints Of The OECD Corporate Mediation Process On Tax Matters

Tax Notes reporters Sarah Paez and Kiarra Strocko discuss what they found in an exploration of the OECD-supported mediation process for multinational corporations.

This transcript has been edited for length and clarity.

David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: multinational mediation.

With multinational corporate taxation and transparency being a hot topic for more than a decade now, Tax Notes reporters Kiarra Strocko and Sarah Paez recently took a deep dive into a dispute resolution mechanism set up by the OECD and its role in tax. Their story, “OECD Corporate Mediation Lacks Teeth on Tax Matters, Critics Say,” was published January 25. We’ll hear from them on what they found in their investigation.

Kiarra, Sarah, welcome to the podcast.

Sarah Paez: Thanks, Dave. It’s good to be back.

Kiarra Strocko: Thanks so much. Happy to be here.

David D. Stewart: All right, so why don’t we start off with an overview of what we’re talking about here, the OECD guidelines and this sort of dispute resolution mechanism? What are they?

Sarah Paez: Sure. The OECD guidelines for multinational enterprises are basically the set of soft law standards. They’re nonenforceable, but they govern multinational corporate behavior. These range from areas ranging from human rights and labor to the environment and, more specifically, taxation.

Basically how these work is if any sort of group, a federation or an individual, finds that any sort of multinational corporation has violated these guidelines, they can file a complaint, called a specific instance, against a corporation for violating any chapter of the guidelines — there’s 10 chapters — with any one of the 51 national contact points. Those are the participating countries in these multinational guidelines.

So basically what happens is these national contact points pick up the complaint if they think that it’s worthy, and then they consider the request for mediation. They will work with the company and the individual or the group that filed the complaint to resolve the issue.

David D. Stewart: What are they really trying to do with using soft law here?

Sarah Paez: Well, it seems like the OECD and the countries that are involved in this specific instance complaint process related to the guidelines are just trying to hold multinational corporations to a certain standard, so whether that be a higher human rights standard for their supply chains or a higher labor standard for their employees. Then in the vein of taxation, that really leads to companies not practicing tax avoidance and basically following the spirit of the law, not just the letter of the law.

David D. Stewart: Kiarra, how did this issue come up on your radar?

Kiarra Strocko: Yeah. Both Sarah and I went to the Investigative Reporters and Editors Journalism Conference in Denver back in June 2022, and one of the panels we went to was led by individuals from Open Secrets, which is a nonprofit that tracks data on campaign finance and lobbying. They went into detail during the panel on how to search for filings under FARA, which is the Foreign Agents Registration Act.

Basically, that requires certain agents of foreign principles engaged in political activities to make these periodic disclosures of their relationship, activities, receipts, or disbursement. From there, Sarah and I became super interested in oil and gas companies and their spending related to foreign lobbying in Congress. Followed the money, as they say.

Then somehow we stumbled upon the complaint brought against Chevron on the OECD’s database of specific instances, and we were shocked to see how many big name companies were involved in these cases related to tax specifically that were not well known. Amongst others, the companies that stuck out to us were Starbucks, Airbnb, and Pluspetrol.

David D. Stewart: All right, so let’s get into the Chevron case. Could you tell us what this case is about and what happened during the proceedings?

Sarah Paez: Yeah, absolutely. So basically in 2018, a coalition of trade unions and nongovernmental organizations filed a complaint, a specific instance, with the Dutch NCP, which is housed within the Ministry of Foreign Affairs, against Chevron, the oil and gas multinational company. They were alleging that the company had violated the multinational guidelines by concealing information about how it relied on Dutch subsidiaries that were acting as shell companies in what they call tax avoidance schemes.

They basically said that Chevron hid tax-related information about its use of 14 shell companies established in the Netherlands that were used allegedly to facilitate tax avoidance through likely nonpayment of corporate and dividend withholding taxes in countries like Nigeria and Venezuela.

Basically, what these groups were asserting was that they just could not find this information. So not only was Chevron in violation of the taxation guidelines of the multinational guidelines, but they were actually also in violation of the disclosure guidelines, which say that multinational corporations must disclose certain financial and other information to the public.

David D. Stewart: OK. And what happened during the proceedings?

Sarah Paez: We heard from both sides. We interviewed people who were involved in putting the complaint forward, and we also interviewed a spokesperson from Chevron. And we were able to interview someone who works in the Dutch NCP.

What we found out was that, according to Chevron, they received this invitation from the Dutch NCP to engage in a mediation process based on this complaint. Chevron said that they did work with the Dutch NCP for about three years, answering their questions and going back and forth with them, and at the end of that three years decided to pull out of the mediation process because they felt that there were issues with certain things being disclosed to the public as a result of this complaint that they did not want disclosed. They thought that that was unfair.

Then they also mentioned that there was an issue with conflict of interest within the Dutch NCP. The Dutch NCP is composed of four experts. They have one from each of the relevant stakeholder groups that would be involved in the MNE guidelines. So that’s business, one from NGOs, one from trade union, and one from academia. The chairperson of the NCP that Chevron was alleging had a conflict of interest had actually worked for one of the groups that brought the complaint, FNV, which is a trade union. Now she’s, of course, not part of that anymore, but they were saying that they had a problem with the fact that she had been involved with that group prior.

But of course, what we heard from the people who brought the complaint and even also from the person we talked to within the Dutch NCP was that’s how that works. They do need somebody who is representative of trade unions, who’s really gotten to a point in their career where they’re considered an expert. And obviously, the chairperson had worked in many different capacities. She hadn’t just worked with this one organization, and of course, they have representatives from other areas. So anyway, that was something that was interesting that we heard from all the relevant groups that were involved in this complaint process.

But Chevron pulled out, and the Dutch NCP issued its final statement and basically acknowledged from what they could find from the publicly available information that they were able to access — they said, “Yeah, this complaint’s pretty reasonable,” and they issued a few recommendations for Chevron to up its transparency and to get in line with the OECD multinational guidelines that they found that they had violated.

David D. Stewart: So Chevron withdrew from this process, but have they done anything to respond to the recommendations of the panel?

Sarah Paez: From what we can tell, not really. Of course, Chevron has told us that they comply with all tax laws in all of the countries that they operate in. But in November, the social justice nonprofit Oxfam International actually came out with a report saying that there are several oil and gas companies, including Chevron, that continue to practice secretive tax practices and that these companies, including Chevron, have ignored repeated requests to disclose tax details that are in line with the standards of the Independent Global Reporting Initiative. That report was issued in November of 2022, so even five years on, it appears that Chevron is still not disclosing information up to the standards that countries would like to see.

David D. Stewart: Since all of this is taking place in the Netherlands, have we heard anything from the Dutch government about it?

Sarah Paez: Well, we have not heard anything from official government ministries about it. However, the Dutch NCP, while they are an independent structure that is not technically affiliated with the Dutch government, they are at arm’s length with the Dutch government. So hearing from them on something of this caliber, a violation of the multinational guidelines by a rather large multinational company — what we heard at least from some of the NGOs and trade unions was that it was a really big deal that the Dutch NCP did issue those recommendations and that they did basically side with the complainants in saying that they really needed to see more from Chevron in terms of transparency.

David D. Stewart: All right. Now, turning to this process in the larger picture, you mentioned how this organization is at arm’s length with the government. Would it benefit from perhaps a closer relationship with the government and information sharing?

Kiarra Strocko: Yeah. This topic of access to data between tax authorities and NCP officials kept coming up in our interviews with sources, and it made us think, “Why is there this lack of communication with tax authorities when that would be super useful if companies chose not to engage or participate in the process?”

That was the issue with Chevron and why there were possible factual errors in the Dutch NCP’s final statement, which we mentioned in our story. Basically, the NCP must conduct its assessment using publicly available information. When a company doesn’t participate, then the numbers might get skewed or rounded up or down. So what we thought was interesting was when the Dutch NCP official said to us that she didn’t think there was a need for further coordination with other departments when we asked her about whether this is something that might be considered in the future.

I’m not sure if there are privacy and data protection concerns, a lack of resources, or if they just simply don’t think it would help. But from the people we spoke to ranging from practitioners, professors, and individuals from involved NGOs, it seems like it would be beneficial. We spoke with a law professor, Martijn Scheltema, and he told us that in the case of the Dutch NCP, it would potentially be because if the government supplied this type of information, it might jeopardize its independence, which Sarah mentioned previously and which we talked about in our story about how they are separate.

David D. Stewart: Now, from the people that you spoke with, have you heard any ideas of how they could make this process work better?

Kiarra Strocko: Yeah, so we received interesting recommendations from Martijn, who I just mentioned, and he said that there should be escalation mechanisms in place if parties don’t agree or one party doesn’t want to participate. He also emphasized that the NCP processes between OECD jurisdictions that adhere to the MNE guidelines should be aligned and have more cohesion.

We learned that 51 governments have an NCP, and each NCP has the autonomy to structure itself and its procedures as they deem appropriate, so long as it aligns with these OECD/RBC (responsible business conduct) rules. He said that government should just be more aware and attach consequences to NCP procedures if companies aren’t willing to participate or implement the recommendations. This would definitely level up that enforcement aspect of things, which might be lacking now.

It was interesting also because Sarah and I went to a conference in Vienna in January with tax professionals, some in government, and many people were not aware of this mediation process generally. And so overall, gaining visibility, accountability, and compatibility would be a good start.

I know that they’re actually planning on having a ministerial meeting February 14-15 to discuss some of these guidelines, and it’s going to be promoting and enabling responsible business conduct in the global economy. That’s their focus for this one.

David D. Stewart: As you’ve mentioned earlier, this process is for many different areas of multinational activity. Are there any specific challenges for working in the tax area?

Sarah Paez: Absolutely. Many of the people we talked to, including the current director of the Center for Tax Policy and Administration at the OECD, Grace Perez-Navarro, said that taxes are a particularly tough area to have mediation in because many companies really see tax as “This is the area of the tax authorities. We really don’t want to engage in any other arena or medium because we engage with the tax authorities on tax matters.” The tax authorities often are the ones who have the mandate and the ability to look through personal taxpayer data and make determinations about what’s owed, whereas for something like the Dutch NCP, they really don’t have that same type of authority.

We heard this from Grace, but we also heard it from others that we interviewed, is that taxes, it’s really tough because, again, the tax authorities is an area where companies already engage. They don’t really know about other forms of mediation that are available. It’s a two-pronged issue. It’s that companies may not want to engage with anyone other than the tax authorities, but they also might not know to engage in any other places other than the tax administration.

Kiarra Strocko: Yeah. We heard from a few other officials that it’s more effective in the environmental and human rights sector, and so Grace was saying that she’s not sure if it works. It might work better among different policy areas. Since there’s not many incentives in the tax sector, maybe merging the tax chapter and disclosure chapter and putting it into the human rights chapter or environmental chapter because the way that these companies structure and do their tax planning, it affects the lives of employees and different people. That was another thing that we heard from the people that we spoke with.

David D. Stewart: Well, Kiarra and Sarah, this has been fascinating. Thank you for being here.

Sarah Paez: Thanks for having us.

Kiarra Strocko: Yeah, thanks for having us. It’s really great to discuss this.