The new tax convention is particularly significant for developing countries. An inclusive tax system is vital for these nations to strengthen their domestic resource mobilization and fund essential services aligned with the Sustainable Development Goals.
By Eileen Travers
The global tax system needed reform, and the UN answered the call on Friday with a blueprint for a new universal tax accord that represents an historic step towards changing the financial landscape.
The aim is to help nations around the world boost economic growth and achieve the 2030 Agenda for Sustainable Development and its 17 goals.
Why does a new convention matter?
The UN tax convention means much to people around the world.
A UN tax convention represents a major shift in how international taxation is approached, with the potential to significantly impact the architecture of global financial systems and how tax dollars are used for the public good.
That’s why the UN’s Ad Hoc Committee to draft terms of reference for a UN framework convention on international tax cooperation concluded its second session by approving a package of guidance for the new treaty, taking a landmark jump towards building a legitimate, fair, stable, inclusive and effective international tax system.
More inclusive and effective international tax cooperation is critical in enabling countries to respond to existing tax-related challenges, from digitalisation to global operations of large multinational enterprises, as well as to mobilise domestic resources and use tax policy for sustainable development.
What will a UN tax treaty cover?
A UN framework convention should, among other things, establish a system that is inclusive, fair, transparent, efficient, equitable and effective for sustainable development, according to the Ad Hoc Committee’s terms of reference.
That would include using approaches that will contribute to the achievement of sustainable development in three dimensions: economic, social and environmental.
In addition, the framework convention should include commitments to achieve its objectives, from equitable taxation of multinational companies to addressing tax evasion and avoidance by high-net worth individuals – and ensuring their effective taxation in relevant Member States.
Two legally binding protocols should also be developed simultaneously with the framework convention, including one to address taxation of income derived from the provision of cross-border services in an increasingly digitalised and globalised economy.
How can a UN tax treaty help the Global South?
An inclusive tax cooperation system can properly address the challenges of strengthening domestic resources to enable all countries to fund and promote policies aligned with the 17 Sustainable Development Goals (SDGs).
“Only an international tax system that is fully inclusive will be legitimate and effective,” said Junhua Li, Under-Secretary-General for Economic and Social Development at the opening of the Ad Hoc Committee session.
A global tax convention aims to ensure that large multinationals pay their fair share of taxes, regardless of where they operate, and is expected to generate significant additional tax revenues for many countries, especially those in the Global South.
“The livelihoods and future of billions of people depend on governments being able to finance basic infrastructure, education, health services and climate action,” the Under-Secretary-General Li said.
Is there consensus on a global tax treaty?
No.
Developing countries largely support it, but some industrialised nations have expressed reservations, as reflected in the vote held in the Ad Hoc Committee on Friday.
A total of 110 Member States voted in favour of the terms of reference for a new treaty, with 44 abstentions and eight nations voting against it (Australia, Canada, Israel, Japan, New Zealand, Republic of Korea, United Kingdom and the United States).
Image: Dominic Chavez / World Bank
