The world needs a fully inclusive international tax system

The global tax system needs reform and the UN has answered the call with a blueprint for a new universal tax agreement that is legitimate, fair, stable, inclusive and effective in changing the financial landscape and supporting sustainable development.

The goal is to help nations around the world boost economic growth and achieve the 2030 Agenda for Sustainable Development and its 17 goals.

Here’s an explanation of what you need to know about the UN tax convention and what it means for people around the world:

Why is a new convention important?

A UN tax convention represents a major shift in the way international taxation is approached, with the potential to significantly affect the architecture of global financial systems and the way tax money is used for the public good.

The United Nations Committee charged with drafting the mandate for a framework convention on international tax cooperation concluded its second session last week with the approval of a package of guidelines for the new treaty.

More inclusive and effective international tax cooperation is essential for countries to respond to today’s tax-related challenges, from digitalisation to the global operations of large multinational companies, as well as to mobilise national resources and use tax policy for sustainable development.

What will a UN tax treaty cover?

A convention should, inter alia, establish an inclusive, fair, transparent, efficient, equitable and effective system for sustainable development, as mandated by the Ad Hoc Committee.

This would include the use of approaches that contribute to achieving sustainable development in three dimensions: economic, social and environmental.

In addition, the framework agreement should include commitments to achieve its objectives, from fair taxation of multinational companies to combating tax evasion and avoidance by high net worth individuals, and ensure their effective taxation in the relevant Member States.

Two legally binding protocols should also be drawn up at the same time as the framework agreement, including one to address the 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 adequately address the challenges of strengthening national resources so that all countries can finance and promote policies aligned with the 17 Sustainable Development Goals (SDG).

“Only a fully inclusive international tax system 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 treaty 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 futures of billions of people depend on governments being able to finance basic infrastructure, education, health services and climate action,” said Assistant Secretary-General Li.

Is there consensus on a global tax treaty?

No.

Developing countries overwhelmingly support it, but some industrialized nations have expressed reservations, as reflected in Friday’s vote in the Ad Hoc Committee.

A total of 110 Member States voted in favour of the mandate for a new treaty, with 44 abstentions and Eight nations voted against (Australia, Canada, Israel, Japan, New Zealand, Republic of Korea, United Kingdom and United States).

What are the next steps?

The mandate of the Ad Hoc Committee will be sent to the General Assemblywhich will put it to a vote during the world body’s 79th session, which begins in September.

If approved, the Assembly will entrust the drafting of the convention and the two protocols to a negotiating committee led by member states, which will meet annually for the next three years. The negotiating committee would then submit a final text to the General Assembly for consideration in the first quarter of the 82nd session, according to the mandate.

This would mean that The 193 UN member states could vote on a finalized global tax treaty in 2027The UN treaty will need a two-thirds majority in the General Assembly to be adopted, after which it would be opened for signature and ratification by all member states.