Arbeitsgemeinschaft für Entwicklung und Humanitäre Hilfe
Kommentar der Anderen | Outside View (EN)
The leadership of the Group of African States in establishing a UN process towards a legally binding convention on international tax cooperation has meant that for the first time in history, all governments of the world are negotiating on issues of international tax on equal footing. It is a historic opportunity for governments to make progress on addressing an outdated international tax system leading to hundreds of billions of dollars in lost public revenue.
Outside view by Pooja Rangaprasad
In November 2023, the tax resolution tabled by the Africa Group at the UN General Assembly was adopted[1] by a majority of countries to begin negotiations towards a UN Framework Convention on International Tax Cooperation (UN Tax Convention). This was the culmination of decades of struggle by Global South countries to democratise global tax governance. Thanks to the Africa Group’s leadership, for the first time in history, all governments of the world are negotiating on international tax on equal footing.
Agreeing on a UN convention on international tax cooperation is an opportunity to finally move towards a coherent international tax system that has the buy-in of all countries through an inclusive, transparent global negotiation process. The broken international tax system from the 1920s is unfit for purpose, with governments losing hundreds of billions of dollars in public revenue. Researchers from the University of California, Berkeley and the University of Copenhagen estimate[2] that close to 40% of multinational profits (close to $1 trillion in 2019) are shifted to tax havens each year. The estimates of the resulting loss of revenue range from $200 billion[3] to $650 billion.[4]
Recent international tax reform efforts have been led by opaque, limited membership bodies such as OECD and G20. Not surprisingly, these efforts have resulted in politically biased and ineffective solutions, with some Global South countries expressing[5] their disappointment that their interests were ignored in the process. This finally led to the overwhelming support by Global South countries to the resolution tabled by Africa Group for a UN tax convention.
Having been built on top of the tax practices within the imperial trading blocs of the 1920s, the international tax system has historically been against Global South interests. The rules on allocation of taxing rights was designed to favour countries where corporations are headquartered (mostly in Global North countries) as opposed to ‘source countries’ (where economic activities take place, that is, in the Global South countries hosting foreign companies). The UN tax convention is an important tool at the multilateral level in addressing these historic North-South inequities.
It is also an important tool in contributing to addressing inequalities within countries. No government can ignore the growing anger of citizens to the unacceptable levels of inequality in society today. Some of the biggest tax dodging scandals have in fact been in Global North countries. There are growing protests and calls by citizens around the world to tax rich corporations and billionaires. An effective and coherent international tax system is vital to ensure that progressive national tax efforts are not undermined.
For instance, wealth taxes at the national level will not be effective if the international tax system allows wealth to be hidden offshore. The inability of Global South countries to effectively tax corporations has resulted in greater reliance on regressive tax measures such as VAT (Value Added Tax) and GST (Goods and Services Tax). Such measures disproportionately impact the most marginalised sections of society, particularly women, as their proportional share of VAT/GST is much higher as a percentage of their total incomes. The UN tax convention is a historic opportunity for governments to move towards progressive international and national tax systems, making meaningful progress in addressing inequalities both between and within countries.
The Africa Group-led tax resolution adopted last year mandated that by the end of August 2024, Terms of Reference (ToR) for a new UN Framework Convention on International Tax Cooperation should be drafted. Though a minority of mostly Global North countries did not support this UN resolution, all countries have been participating in the process towards agreeing to the ToR for a UN tax convention.
In two sessions of spring of 2024, all countries agreed on the roadmap towards drafting the ToR, including the outline of work and procedural modalities. Countries have also provided inputs on corporate tax reform, taxing the digital economy, wealth taxes and environmental taxes, among others. Once the drafting of the ToR is completed by the end of August, the UN General Assembly will then decide on the next steps in the process towards a UN tax convention.
In addition, all meetings have been livestreamed and observers, including intergovernmental organisations, civil society, private sector, and academia have been able to participate in the meetings. This transparency in the negotiations is in stark contrast to the opaque processes led by the OECD on tax all these years.
The importance of continued cooperation by all countries, in particular by Global North countries, cannot be overstated. Global North countries’ obstinate blocking of this process in the UN for decades has already proven costly. The world cannot afford more delays in a context where urgent financing is needed for quality public services, addressing global development challenges and meeting commitments on human rights, gender equality and the climate crisis.
This historic tax breakthrough has important implications for the broader fight by Global South countries to democratise processes on all issues of global finance. They have been calling for UN-centred processes on decision-making on global finance that ensures Global South countries have equal voice and vote. Though international economic cooperation is part of the responsibilities of the UN, it has been systematically marginalized by undemocratic forums such as World Bank, IMF, OECD, Paris Club, etc. Global South solidarity at the UN remains more important than ever in crossing the finish line on establishing a democratic global economic governance architecture.
[1] UN General Assembly (28.12.2023): Resolution adopted by the General Assembly on 22 December 2023: Promotion of inclusive and effective international tax cooperation at the United Nations
[2] Review of Economic Studies (2022): Close to 40% of multinational profits are shifted to tax havens each year
[3] ibid.
[4] IMF (May 2015): IMF Working Paper. Base Erosion, Profit Shifting and Developing Countries
[5] Bloomberg (19.01.2023): Nigeria Snubs Global Tax Deal in Sign It Won’t Work for All
Globale Verantwortung (28.11.2023): Historischer UN-Beschluss für eine globale Steuerreform
Pooja Rangaprasad is the policy and advocacy director on financing for development (FfD) at Society for International Development (SID). She leads and facilitates policy dialogue and advocacy efforts towards UN Member States on issues of global finance and development, while also promoting a Southern-led agenda based on human rights, equity and sustainability. Prior to joining SID, she worked for several years on issues of tax and development at national, regional and global levels. She is based in India.
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