This blog was written by Henrique Alencar, Policy Advisor Tax and Inequality at Oxfam
At the 2022 United Nations General Assembly, several resolutions were discussed that have a major impact on global issues. One of those resolutions could change the way international tax rules are created and promote a new system that addresses tax avoidance by multinational corporations. Namely, the resolution that focuses on the Promotion of Inclusive and Effective Tax Cooperation at the United Nations.
A Broken System
Over the last century, decisions on the design of the international tax framework were made by a small group of wealthy countries, first through the League of Nations and currently through the OECD (the Organization for Economic Cooperation and Development). The debate is led by these countries to the detriment of the legitimate interests of Global South countries.
The current international tax governance structure has resulted in a broken system that provides multinational corporations with ample opportunities to avoid taxes. In 2022, an estimated $311 billion was lost to tax avoidance by multinational corporations, mostly affecting vulnerable countries from the Global South. While rich countries rely mainly on personal tax revenues, the contribution of corporate taxation to the total revenue of developing economies remains very high.[1] These same countries tend to be excluded from discussions on international corporate taxation, and so they often cannot participate in addressing the issues that deeply affect them.
Taxes play a fundamental role in the ability of countries to develop their economies, meet the Sustainable Development Goals (SDGs), and provide vital public services. Tax revenues are desperately needed to increase climate resilience, reduce extreme inequality, eliminate poverty, and lay the foundation for green and inclusive development.
Strengthening International Tax Cooperation
In December 2022, the Africa Group at the United Nations – made up of the 54 African Union Member States at the organization – submitted a resolution[2] to begin discussions on strengthening the inclusiveness and effectiveness of international tax cooperation. The resolution was met with resistance from OECD countries, with an amendment proposed by the United States that sought to make the intergovernmental discussions so vague as to become meaningless. While the amendment received support from some countries – including the Netherlands and other major OECD economies – it was ultimately rejected.[3] The resolution from the Africa Group was unanimously adopted on 30 December 2022.
Oxfam recognizes the legitimate demand by the Africa Group – shared by many other developing nations across Latin America and Asia – for the improvement of international tax governance and the establishment of more inclusive decision-making processes.[4] Many other CSOs, including Tax Justice Network-Africa, have also made clear their support for the establishment of a permanent body for international tax cooperation at the UN.[5]
On 31 August 2023, the UN Secretary-General published a report analyzing options and possible next steps for international tax cooperation at the UN. The report identified different options, ranging from the establishment of a permanent UN tax body to voluntary cooperation frameworks with limited scope. CSOs and developing countries largely came out in support of a permanent tax body at the UN as the appropriate forum for effective and inclusive international tax governance, as it would give all countries an equal opportunity to influence decisions that impact their ability to collect tax revenue and finance public expenditures.
On 22 November 2023, a resolution submitted by Nigeria calling for a “framework convention on international tax cooperation” was put to vote. While it was approved with the support of 125 countries, it was opposed by 48 countries including the Netherlands, the United Kingdom and the United States.
Following the adoption of the resolution, a UN Intergovernmental Committee on International Tax Cooperationwas established with the objective of agreeing on Terms of Reference for a UN Framework Convention on International Tax Cooperation by the end of August 2024.
OECD-led status quo
Over the past decades, the OECD has been at the centre of international tax governance. Due to the longstanding criticism around the lack of legitimacy of 38 OECD members dictating international tax rules, in 2016 the OECD establishedan Inclusive Framework on Base Erosion and Profit Shifting to address significant issues around corporate tax avoidance. The Inclusive Framework currently has 145 members, with 1/3 of African countries not members of the initiative.
In 2021, the Inclusive Framework delivered the Two-Pillar Agreement to address the tax challenges arising from the digitalisation of the economy.[6] Pillar 1 is broadly recognized as a failed projectas significant impediments remain in place for its implementation – both of a technical and a political nature, as reflected in the unwillingness of the United States congress to consider its approval, which will result in Pillar 1 not being effectively implemented.
At the same time, Pillar 2, popularly known as the Global Minimum Tax,[7] entered into force in 2024. While a minimum tax rate for large multinational corporations is a clear positive development, the insufficient 15% rate agreed upon and the presence of significant loopholes in the deal will allow the Netherlands and other tax haven jurisdictions to bypass the agreement and continue to offer very low rates to multinationals.[8]
As there is no clear pathway for the international implementation of Pillar 1, and the loopholes of Pillar 2 will continue to distort any attempt of establishing a level playing field, the Two-Pillar Agreement is broadly rejected by CSOs and many developing countries. The dead-end situation is interpreted as a sign of the inability of the OECD to deliver a concrete pathway to improve international tax arrangements. Oxfam is of the view that the OECD Two-Pillar Agreement is both unfair to developing countries and unable to solve the loopholes in international taxation that allow multinational corporations to avoid taxes.
In addition to the failure of the OECD to address corporate tax avoidance, the prospect of a governance structure with equal-standing for all countries to influence and decide on crucial issues is another strong argument for a UN tax body. Based on ensuring the representation of all United Nations members – currently 193 jurisdictions, compared to 38 OECD member-states and 145 jurisdictions at the OECD’s Inclusive Framework – a UN body would be a more legitimate forum for decisions that impact the ability of all countries to collect tax revenues and fund their pursue of economic development and provision of essential public services.
Role of the Netherlands
As a country that greatly benefits from the status quo and does not support a strong UN tax body, it is essential to consider the position of the Netherlands in the upcoming UN negotiations. Since the main goal of this initiative is to ensure equal representation, the Netherlands must be mindful of the impact that failed negotiations and a perceived lack of good faith would have on other geopolitical issues. Refusal to respond to a legitimate aspiration of Global South countries could affect several Dutch priorities, including cooperation on climate change, migration, and food security.
Through its 2023 Africa Strategy policy,[9] the Netherlands confirmed its intention to improve its relationship with Africa and position itself as an attractive partner for the region. The Netherlands’ position in the field of international tax cooperation can have a major impact on this endeavour, as it needs to develop mutually beneficial relationships with African countries and cooperate on an equal footing. The perceived refusal to genuinely respond to these demands may further distance Europe from the Global South, especially as Russia and China continue to pose major geopolitical challenges.
Latest developments
At the initial sessions of the UN Intergovernmental Committee on International Tax Cooperation in February 2024, all country groupings – including OECD members – positively engaged in discussions and highlighted that reasonable efforts should be made to seek consensus throughout the process. Following the initial sessions, all stakeholders were invited to submit input on Terms of Reference for a UN Framework Convention on International Tax Cooperation to be developed during the upcoming months.
Oxfam and TJN-A, together with 173 other CSOs and trade unions, presented a submission as the Civil Society Financing for Development Mechanism group.[10] Many jurisdictions also presented an input, including the Netherlands. On its submission, the Netherlands highlighted positive aspects of a potential UN tax body and possible areas of work – including focusing on tax treaties and the taxation of high-net-worth individuals – however it also stressed that “the convention should seek to avoid duplication and fragmentation of work” in relation to other international fora.[11]
This position, which has been consistently raised by OECD countries from the start of the UN tax negotiations, is interpreted by CSOs and the Global South as precluding a UN tax body from discussing and proposing policy solutions in the area of international corporate taxation, which would remain exclusively under the control of the OECD. Due to the acute importance of international corporate taxation in a globalized economy and the severe impact that continued corporate tax avoidance represents for the Global South, it is unlikely that the Africa Group and its allies would accept such a limitation on the scope of the UN tax body.
With the next sessions of the intergovernmental committee scheduled to take place in late April, the position of more countries will become clear as negotiations start to shape a future UN tax body. Oxfam calls upon the Dutch government to engage in good faith in the negotiations and to recognize the legitimate aspirations of developing countries to have a say in all areas of international taxation, including on the taxation of multinational corporations.
[1] As of 2021, revenues from Corporate Income Taxation represented the following percentage in relation to total tax revenue: 58% in India, 66% in Malaysia, 52% in Indonesia as compared to 9% in France and the United Kingdom. https://www.oecd.org/coronavirus/en/data-insights/developing-countries-more-at-risk-of-lost-tax-revenues
[2] Resolution A/RES/77/244 on the “Promotion of Inclusive and Effective Tax Cooperation at the United Nations”:
1. Recognized the timeliness and importance of strengthening international tax cooperation to make it fully inclusive and more effective;
2. Decided to begin intergovernmental discussions at the UN on ways to strengthen the inclusiveness and effectiveness of international tax cooperation through the evaluation of additional options, including the possibility of developing an international tax cooperation framework or instrument through a United Nations intergovernmental process;
3. Requested the Secretary-General to prepare a report analyzing all relevant international legal instruments, other documents and recommendations that address international tax cooperation, as well as outlining potential next steps, in consultation with Member States, the Committee of Experts on International Cooperation in Tax Matters, the Platform for Collaboration on Tax, and other international institutions and relevant stakeholders;
4. Decided to consider the report at its seventy-eighth session (2023).
[3] 55 votes in favor, 79 against and 13 abstentions.
[4] https://financing.desa.un.org/sites/default/files/2023-03/OXFAM_Input%20Tax%20Report.pdf
[5] https://financing.desa.un.org/sites/default/files/2023-03/Tax%20Justice%20Network%20Africa_Input%20Tax%20Report.pdf
[6] https://www.oecd.org/tax/beps/statement-on-a-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2021.htm
[7] The Global Minimum Tax applies to multinational enterprises with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues. The Minimum Tax directive was unanimously adopted by the European Union in December 2022. The Minimum Tax Rate Act 2024 was presented to the Dutch Parliament in May 2023 and is entered into force on 31 December 2023.
[8] https://nos.nl/artikel/2512327-ambtenaren-wijzen-op-nieuwe-route-voor-omzeilen-wereldwijde-minimumbelasting
[9] https://www.rijksoverheid.nl/actueel/nieuws/2023/05/31/afrikastrategie-kabinet-presenteert-geintegreerde-inzet-voor-samenwerking-met-afrika
[10] https://financing.desa.un.org/sites/default/files/2024-03/Civil%20Society%20Financing%20for%20Development%20Mechanism_Input_AHC%20Tax_2.pdf
[11] https://financing.desa.un.org/sites/default/files/2024-03/Netherlands_Input_AHC%20Tax.pdf