The Organisation for Economic Cooperation and Development (OECD) is facing a challenge to its leadership on global tax coordination after a majority of United Nations (UN) members supported an African-led initiative to bring international tax cooperation to the UN. Many developing countries have expressed frustration at their inability to influence discussions on global tax cooperation at the OECD. On Wednesday, 125 mostly developing countries backed a draft UN resolution calling for a 'framework convention on international tax cooperation.' Some 48 mostly developed countries, including the UK, Germany, Japan, and the US, were against the resolution. The African Union welcomed the vote, stating that it would help facilitate access to much-needed financial resources. The OECD, which has coordinated international tax issues among its 38 mostly developed country members, played a key role in the 2021 deal to rewrite cross-border taxation rules for the digital age. While the minimum corporate tax rate is set to begin next year, the new treaty on taxing rights faces challenges, particularly in the US where Senate ratification requires a two-thirds majority. The UN vote is expected to lead to increased cooperation between the UN and the OECD in the future, focusing on areas such as illicit financial flows and formalizing the informal economy.
An international campaign led by the European Union (EU), United States, and United Kingdom (UK) to defeat the establishment of a United Nations (UN) convention on global tax rules has failed. The resolution, titled 'Promotion of Inclusive and Effective International Tax Co-operation,' and the proposal for a UN tax convention were tabled by Nigeria on behalf of the Africa group at the UN. The resolution was passed by a majority of 125 votes to 48, with the EU27 countries forming the bulk of the 48 countries that voted against the convention. The United States, UK, and Japan were also among those opposing the convention.
African states argue that global tax policy should be set at the UN level rather than by the Organisation for Economic Co-operation and Development (OECD). They believe that the UN is better equipped to address illicit financial flows and tax avoidance, which disproportionately affect African countries. Critics of the UN convention argue that the organization lacks the resources and expertise to set tax rules and that the new process could hinder the progress made by the OECD. EU countries alone lose over $130 billion a year to tax havens.
The failure of the EU, US, and UK-led campaign means that plans for a UN convention to establish global rules on tax and illicit financial flows will move forward. This development marks a significant step towards addressing tax avoidance and establishing a more inclusive and effective international tax co-operation framework. The UN convention aims to tackle the issue of tax evasion and profit shifting by multinational companies, which has led to significant revenue losses for governments worldwide.
The establishment of a UN tax convention is seen as a crucial step in ensuring that multinational companies pay their fair share of taxes and contribute to the economies in which they operate. The convention will provide a platform for countries to negotiate and set global minimum tax rates, close tax loopholes, increase transparency, and strengthen tax enforcement. By shifting the global tax policy-making process to the UN, African countries and other proponents of the convention hope to achieve a more equitable and inclusive framework that addresses the current shortcomings of the international tax system.
While the EU, US, and UK have expressed their opposition to a binding UN framework convention, the majority vote in favor of the resolution indicates widespread support for the UN's role in international taxation. The resolution's passage reflects the growing recognition of the need for multilateral solutions to combat tax evasion and ensure a fairer global economy. The UN tax body's decision to proceed with the establishment of a global tax convention underscores the urgency and importance of addressing the unfairness and inefficiency of the current system of corporate and wealth taxation.
Latin American and Caribbean (LAC) countries have low tax collection rates compared to OECD members, due to a lack of progressive taxation and flaws in the international tax architecture. The African Group at the United Nations has called for new negotiations on international tax cooperation to create more equitable rules that benefit developing economies. LAC countries should welcome the UN's involvement in shaping global tax policy, as the current OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) has been disappointing for the Global South. Developing countries can implement unilateral measures, such as digital service levies, to ensure multinationals pay their fair share of tax. The UN process would also allow for a broader reconsideration of closing loopholes in the international tax system, including coordination on taxing individual wealth. The UN's universal membership and principle of sovereign equality make it uniquely positioned to address these issues. LAC countries should support the African Group's call for a new, more inclusive UN convention on international tax cooperation. [1e21ac32]