By Bodo Ellmers
In November 2023, the UN passed a landmark resolution on international tax cooperation. It opens an intergovernmental negotiation process that many hope will lead to a UN tax convention of universal application. The special session of the UN Economic and Social Council on March 31, 2023, was the first diplomatic probing of the negotiating groups.
Tax cooperation is perhaps the most poorly regulated area of global economic governance. A specialized International Tax Organization is as non-existent as a comprehensive legal framework of universal application. The thousands of bilateral tax treaties that countries have entered into in the absence of a multilateral regulatory framework have brought more confusion and complexity than order and fairness to the global tax non-system. The regulatory loopholes make tax dodging easy. Transnational corporations in particular take advantage of the situation and reduce their levies. All states suffer from the revenue shortfalls. They are particularly severe in low-income countries, where every dollar in the budget counts to finance public goods and escape aid dependency.
Historic breakthrough at the United Nations
Developing countries, and especially the African Group at the United Nations, have then been the driving force behind recent progress. A historic breakthrough for more effective global governance on tax is UN General Assembly Resolution 77/244, which was unanimously adopted by the UN General Assembly last fall. The Resolution mandates intergovernmental negotiations on tax cooperation at UN headquarters in New York. This is an important first step in filling the regulatory gaps. While there are complex negotiation formats in other policy areas - a key example is the UN climate process with its annual summits, the Conferences of the Parties, or climate COPs - there has so far been no place in the policy area of taxation where the global community can come together in a fully inclusive manner to reach universally valid agreements. This governance gap is now history.
However, the African countries had to scale down their ambitions for the time being. Their original draft resolution had envisaged immediately mandating a process toward a UN tax convention, i.e. moving quickly and on a direct course toward a legally binding multilateral instrument. This met with resistance in the negotiations from the U.S. and some other OECD member states, including from Europe. Their main fear seems to be that they will have to cede taxation rights to countries in the global South. Until now, transnational corporations have mainly paid their taxes in the home country of their corporate headquarters, which are predominantly located in developed countries. Countries in which they do business, on the other hand, are left empty-handed. This is the reason for the enormous loss of revenue in Africa in particular.
As a compromise solution, Resolution 77/244 is open-ended, i.e. it indicates an international framework on taxation as a possible outcome of intergovernmental negotiations, but not in a binding way. Initially, anyway, the UN Secretary General was mandated to prepare a detailed report on existing legal instruments that would provide the basis for negotiations. This is based on a consultative process. Inputs from UN member states and other stakeholders were made publicly available in March 2023. This good practice also demonstrates that the new UN process aims to uphold the highest standards of transparency. Until now, bi- or plurilateral negotiations on taxes have always taken place behind closed doors, inaccessible for the public eye.
The global South as a driving force
To capitalize on the current momentum, the UN Economic and Social Council convened a special session on taxation on March 31, 2023. The one-day session focused on the role of taxes in the context of the energy transition on the one hand, and the other topic was the first major debate on international tax cooperation since the adoption of the UN resolution. Here, therefore, it was possible to see where the parties stood. It was remarkable that the countries of the global South, even outside Africa, united behind the project.
Particularly striking was the commitment of Colombia, whose Finance Minister José Antonio Ocampo opened the session as keynote speaker. Ocampo relentlessly denounced the existing deficits of the tax non-system and brought the term UN Tax Convention back into the debate. The support of a Latin American country - which is also an OECD member state - was significant. Ocampo, moreover, is no stranger to the topic. As an economics professor and former chair of the UN Committee on Development Policy, he is familiar with the tax challenges of the global South. He was also a member of the UN FACTI Expert Panel on Illicit Financial Flows, which advocated for the UN Tax Convention back in 2021, and a keynote speaker at an expert meeting organized by Global Policy Forum and partners in New York in April 2022, where we discussed civil society proposals for a UN Tax Convention.
Hesitant attitude in the global North
Positions from the North were somewhat more cautious. In its intervention, the USA indicated that the redistribution of taxation rights might meet with little enthusiasm in the U.S. Congress. The EU first wants to prioritize the implementation of OECD agreements on corporate taxes. However, These are not received very enthusiastically in the global South, as they will not end the structural discrimination in the distribution of taxing rights.
Moreover, the IMF stressed at the meeting that their implementation would hardly bring fresh money into the empty coffers of poor countries. Prominently led by Zainab Ahmed, the Finance Minister of Nigeria, the representatives of African countries reiterated their call for an ambitious intergovernmental negotiation process at the United Nations, leading to no less an outcome than a comprehensive UN tax convention. So it promises to remain exciting. The first steps toward a more effective and fairer international tax system have been taken.