In a significant development on the global stage, the United Nations has initiated the process of establishing the first-ever global tax convention, aimed at curbing cross-border tax evasion and ensuring that countries of all economic sizes have a more equitable say in the international tax framework. This move, seen as a major stride towards tax equity, comes amid increasing concerns over multinational corporations exploiting tax loopholes across various jurisdictions.
UN resolution lays foundation for global tax reform
The UN General Assembly recently passed a groundbreaking resolution mandating the creation of a global tax convention under its auspices. The convention is poised to set new international standards for tax cooperation, with an emphasis on eliminating harmful tax practices, enhancing transparency, and addressing the longstanding issue of tax evasion by multinational entities. The resolution received broad support from member states, highlighting a growing consensus on the need for a more inclusive global tax system.
This initiative marks a shift from the OECD’s traditional dominance in setting global tax rules, a system where developing nations have often felt sidelined. The UN-led convention aims to rectify this imbalance, ensuring that developing countries, particularly those in the Global South, have a stronger voice in shaping the future of international tax policy.
Tackling the global tax gap
At the heart of the convention’s agenda is the challenge of tax evasion by multinational corporations, which often deploy complex financial structures to shift profits to low-tax jurisdictions. This practice, known as base erosion and profit shifting (BEPS), has led to substantial revenue losses for countries worldwide, especially those with limited resources to counter such sophisticated tax avoidance schemes
UN Secretary-General António Guterres underscored the significance of the convention, stating that it would “ensure that all countries, big or small, rich or poor, have an equal seat at the table and an equal say in global tax governance.” He also pointed out the convention’s potential to mobilise critical resources for sustainable development, especially as nations continue to recover from the economic impact of the COVID-19 pandemic.
Challenges and the path forward
While the adoption of the resolution is a landmark achievement, the journey towards finalising the global tax convention will be complex. The convention must reconcile diverse interests, including those of developed and developing nations, civil society, and the private sector. Key issues on the negotiation table will include the allocation of taxing rights, defining taxable income, and establishing mechanisms for resolving disputes.
The UN’s role in facilitating these negotiations is crucial to ensuring that the convention is genuinely global and inclusive. The organisation will convene member states, foster dialogue, and provide the technical support necessary to craft a convention that addresses the needs of all nations, particularly those historically marginalised in global tax discussions.
Implications for India
For India, the proposed global tax convention presents both significant opportunities and challenges. As a major emerging economy, India has consistently advocated for greater fairness in the international tax system, especially regarding the digital economy, where tech giants often pay minimal taxes despite generating significant revenues. The UN-led convention offers India a platform to push for more equitable tax rules that align with its economic interests.
However, the convention may also require India to navigate complex negotiations with other major economies, particularly on issues like tax incentives and the taxation of digital services. India’s stance in these negotiations will likely be influenced by its broader economic goals and geopolitical strategy, as well as its commitment to a fairer global tax regime.
The UN’s move to create a global tax convention is a critical step towards reforming the international tax system. By bringing all nations to the table, this initiative aims to address the deep-rooted issues of tax evasion and foster a more transparent, equitable, and inclusive system of global tax governance. As negotiations advance, the global community will be closely watching how this historic initiative unfolds and its implications for the future of international taxation.
