UN Tax Framework Convention: the final text of the Terms of Reference (TOR) adopted with notable votes against or abstention 

After three weeks of negotiations, the United Nations (UN) has released the final text of the Terms of Reference (TOR) for a new Tax Framework Convention. This resolution was adopted with 110 votes in favor and 8 against. As the Chair of the session, Ramy Mohamed Youssef, noted, the “rules of play” for international tax cooperation have now been set, but many challenges remain as the process moves forward.

KEY INSIGHTS FROM THE VOTE

The resolution's approval by a large majority highlights its broad support among UN Member States, including some Organisation for Economic Co-operation and Development (OECD) members like Chile and Colombia, as well as major economies such as China. However, the opposition from key developed nations like the United States, the United Kingdom, Japan, and Canada, alongside Australia, New Zealand, Israel, and the Republic of Korea, underscores the existing political and economic divides.

Furthermore, 43 countries chose to abstain from the vote, including several European Union (EU) and OECD member states. Their decision to abstain often hinged on concerns about how international tax cooperation should align with broader international human rights obligations.

Visual from Why the world needs a UN global tax convention | UN News: The UN's Ad Hoc Committee to draft terms of reference for a UN framework convention on international tax cooperation voted in favour of sending guidance to the General Assembly to establish a UN global tax treaty.

OBJECTIVES AND SIGNIFICANCE OF THE UN TAX FRAMEWORK CONVENTION

The newly approved framework convention aims to transform global tax cooperation by creating a fair, stable, and inclusive international tax system. This initiative aligns with the broader goals of the 2030 Agenda for Sustainable Development and its 17 goals, including economic growth, social development, and environmental sustainability. A more inclusive and effective international tax system would help countries address complex issues like digitalization, the operations of large multinational enterprises, and the mobilization of domestic resources.

The convention seeks to ensure that tax policies contribute to sustainable development and equity. It aims to tackle tax avoidance and evasion, particularly among multinational corporations and high-net-worth individuals, thus ensuring they pay their fair share. Two legally binding protocols will be developed alongside the framework, including one focused on the taxation of income from cross-border services, a pressing concern in the increasingly digital and globalized economy.

CHALLENGES AND THE ROAD AHEAD

Despite its ambitious goals, the UN tax convention faces significant hurdles. The lack of unanimous support, especially from influential developed nations, raises questions about the convention’s effectiveness and implementation. In the next phase, the newly formed committee tasked with drafting the framework and protocols will face the challenge of bridging the gaps between opposing positions that emerged during the TOR discussions.

A primary concern among some abstaining and opposing countries is the alignment of tax policies with human rights obligations, which remains a contentious issue requiring further dialogue. Additionally, there are concerns about the perceived inflexibility in defining only two protocols and the process for their finalization.

The Ad Hoc Committee’s TOR will now move to the UN General Assembly, which will vote on the resolution in its 79th session, starting in September. If adopted, a Member State-led negotiating committee will work over the next three years to draft the final convention and protocols. This draft will then be presented for consideration during the 82nd session in 2027, with all 193 UN Member States having the opportunity to vote on the finalized treaty. Once adopted, the convention will be opened for signature and ratification.

IMPLICATIONS FOR THE GLOBAL SOUTH

For many developing countries, a globally inclusive tax cooperation framework represents a pathway to enhanced domestic resource mobilization, which is crucial for funding infrastructure, education, healthcare, and climate initiatives. As Junhua Li, UN Under-Secretary-General for Economic and Social Development, emphasized, the livelihoods and future of billions depend on governments’ ability to finance such essential services. Ensuring that multinational corporations pay their fair share of taxes can significantly bolster the economies of countries in the Global South, fostering sustainable development and reducing economic disparities.

SOURCES/RECOMMENDED READ:

• Second Session | Financing for Sustainable Development Office (un.org) 

• Chair's proposal draft ToR_L.4_15 Aug 2024____.pdf (un.org)

• Why the world needs a UN global tax convention | UN News