UN Tax Convention is Historic Opportunity at Risk of Failing

February 15th, 2024

In late November, the UN General Assembly passed a landmark resolution signaling a start on working on a UN framework convention on taxation.

This is a testament to decades of work especially by civil society and African states in pushing for a greater role for the United Nations in global tax governance where Global South countries hold a majority.

Rich countries may now boycott it.

Too much is at stake. Over the past decades, global tax norms have mostly been made at the Organisation for Economic Development and Co-Operation (OECD) and have mainly been negotiated between the European countries and the United States.

They have also largely relied on multinational enterprises (MNEs) regulating themselves where intra-firm trade is regulated as if companies were trading with unrelated parties.

These companies are estimated to shift US$950 billion of profits towards tax havens, leading to associated corporate income tax revenue losses of US$200 to US$300 billion.

In Europe, tax abuses have led to accusations of unfair competitive advantage in the European Union. Apple for instance was fined €14.3 billion (US$15.6 billion) for unpaid taxes in Ireland, while offshore leaks in Luxembourg – called LuxLeaks – showed how over 340 large companies had secretive tax rulings reducing their taxable income.

Making matters worse, countries like Ireland and Luxembourg with extremely low corporate taxes had huge influence when the OECD negotiated the global minimum tax agreement, gaining concessions through the European Union position.

This ultimately led to an agreed 15% global minimum tax rate which was very low due to opposition of key European tax havens like Ireland and Malta where corporate taxes are even lower. The US Treasury had tabled a 21% initial proposal, while many in the Global South, academia and civil society advocated for a 25% rate.

But that is not all.

Loopholes introduced into this deal have reduced its effectiveness even further, such as the carve-out where companies with at least some minimal assets and employees in a tax haven can continue to benefit from its favourable tax regime, thereby reducing significantly the impact of the global minimum tax.

Luxembourg is likely a key beneficiary of this carve-out, as companies may end up slightly upsizing the employment and physical assets there to benefit from the favourable tax regime for their global operations.

Some tax havens in the Global South countries as well, like Mauritius and Panama, offer similar loopholes as Luxembourg.

The UN tax convention should resolve these issues. Negotiations held between the Africa Group, Small-Island Developing States, and the group of G77 and China for all Global South countries should provide a more even platform that benefits countries most harmed by tax abuses.

Importantly, setting global tax regimes at the UN would ensure that key issues such as promoting gender equality, human rights and environmental justice will be included in the overall negotiations which are also key to achieve the UN Sustainable Development Goals.

Starkly, these key development and equality priorities which need funding to be achieved are not even mentioned in the OECD-led tax negotiations.

The UN tax convention would also spur the creation of open and public ownership registries of all owners of companies, trusts and other legal entities as the global standard (known as Beneficial Ownership Transparency).

This is crucial to tackle fraud and corruption and uncover those ultimately responsible for human rights and environmental crimes such as illegal fishing, illegal logging and labour abuses as opposed to simply going after middlemen and operators who benefit from these crimes.

Worryingly, the OECD’s Global Forum and the Financial Action Task Force (FATF) – the global money laundering and terrorist financing watchdog – do not promote public beneficial ownership registries as a preferred option, and instead propose the creation of centralised which are closed to everyone including journalists and civil society organisations.

The first intergovernmental tax negotiations at the UN are expected to start in early March, focusing initially on process-related issues such as electing a bureau, agreeing an agenda, and determining how civil society groups, businesses and other stakeholders will participate in the process.

In June or July, we expect to see the substantive issues being raised. That is when rich countries are expected to try to stall and limit the scope of the negotiations and keep power to themselves at the OECD level.

Our hope to end tax abuses by multinational companies and the wealthy now rests on the resolve of the Global South. And for Global North countries to realise this is also in their own interest.


Photo: The UN General Assembly in session. Credit: UN Photo/Manuel Elias

Written by Matti Kohonen

Executive Director

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