Following the publication of the Global Tax Report by the UN in August 2023, there has been a tussle between the OECD and UN for control over international tax affairs. We posed a question to key voices in global tax regulation: what should the UN's role in international taxation be?
In this article, Attiya Waris, UN Independent Expert on foreign debt, other international financial obligations, and human rights, advocates for a transformative global fiscal system, proposing the creation of a global tax body to ensure fair international tax governance and address issues like illicit financial flows and escalating global debt. She emphasizes the need for a neutral space to negotiate debt terms, fair treaties, and effective sovereign debt restructuring. The article also calls for reforms in credit rating agencies and stresses the importance of an inclusive and democratic fiscal architecture to combat tax avoidance.
Multilateral measures are in place to provide specific guidelines on international tax cooperation. Some of those guidelines include, but are not limited to, combatting tax-related illicit financial flows, refraining from facilitating tax abuse, promoting international tax competition and supporting reforms to promote more equitable international tax governance norms and institutions. There are also other initiatives, including the creation of a global tax body that “would allow all countries to have an equal say in the setting of standards and decision-making on issues related to tax matters” .
In 2014, the High-level Panel on Illicit Financial Flows from Africa noted that “initiatives that are emerging at the global level, particularly in OECD, G8 and G20 and economically powerful States … do not have Africa or indeed other developing country regions in mind” . At the time, the Panel noted that countries in Africa were being required to bear the cost of compliance without being a…
Geoff Cook, Chair of Mourant Consulting and Chair of the STEP Global Public Policy Committee
"A combined approach, leveraging the UN's inclusivity and the OECD's technical proficiency, could yield a balanced, effective, and representative, global tax policy framework."
Mona Baraké, Postdoctoral Researcher, EU Tax Observatory / Paris School of Economics
"While the OECD, with its 38 member countries and an inclusive framework on BEPS that encompasses 140 countries, has been instrumental in designing the two-pillar solution and driving it to implementation, the purpose of the UN's involvement should be to benefit from these previous efforts and not duplicate them."
Alex Cobham, Chief Executive, Tax Justice Network
"The fact that we can even ask how big the UN´s role in tax should be, is a mark of just how far the OECD, the rich countries’ club, has managed to skew the debate. "
Alicia Nicholls, Caribbean Trade Law & Development
"The UN is the more appropriate and inclusive setting in which countries could work cooperatively to craft fair and development-friendly global tax rules."
Brian Garst, Vice President, Centre for Freedom and Prosperity
"There’s little reason to suspect that entrance of the United Nations into the global tax arena would help usher in a better system."
Tove Maria Ryding, Policy and Advocacy Manager for Tax Justice, Eurodad
"For over 50 years, the OECD has been trying to position itself as the global standard-setter on tax, but despite promises to the opposite, developing countries have never been able to participate on an equal footing in the OECD-led negotiations."
Stéphanie Fuchs, LLM, Senior Associate with MLL’s Tax Practise Group
"...the much needed perception has been created for the need for emerging countries to foster their representation in international tax policy setting."
The relationship between the United Nations (UN) and the Organisation for Economic Co-operation and Development (OECD), particularly its Global Forum on Tax Transparency, is intricate, balancing inclusivity, expertise, and geopolitical nuances.
The UN's universal membership offers an inclusive platform representing developing and smaller nations who are sometimes sidelined in global economic discussions. Tax policies are crafted for diverse financial needs, aligning with the UN's sustainable development and poverty reduction goals.
However, the UN's broader, diverse membership can constrain consensus-building, and technical capacity in tax matters is limited, whereas historically, the OECD excels in tax policy development, and demonstrates through initiatives like the Base Erosion and Profit Shifting (BEPS) project, its specialised economic focus and efficient decision-making with a smaller, more homogenous membership.
Criticism of the OECD as favouring developed countries, is addressed by its Global Forum on Tax Transparency. With over 160 jurisdictions, the Forum broadens participation in tax discussions, enhancing OECD-led initiatives' legitimacy, and focusing on transparency and information exchange, which are vital for combatting tax evasion. Despite these efforts, the OECD faces challenges of perceived exclusivity, and potentially conflicts with the UN's broader agenda.
Choosing between the UN and OECD for global tax coordination is complex. The UN offers broad representation, but needs more efficiency and technical know-how, while the OECD provides expertise but faces exclusivity criticisms. A combined approach, leveraging the UN's inclusivity and the OECD's technical proficiency, could yield a balanced, effective, and representative, global tax policy framework. This hybrid strategy might be vital in formulating equitable, globally diverse, and technically sound tax policies.
In recent years, there has been significant interest in reshaping international taxation and taxing multinationals from both developed and developing countries. The UN, representing a broader spectrum of countries, especially developing countries, offers an opportunity to expand upon and diversify the work initiated by the OECD. This includes addressing concerns from developing countries that have felt excluded or found the process lacking transparency and affordability in active participation. While the OECD, with its 38 member countries and an inclusive framework on BEPS that encompasses 140 countries, has been instrumental in designing the two-pillar solution and driving it to implementation, the purpose of the UN's involvement should be to benefit from these previous efforts and not duplicate them. Instead, the UN could aim to build on the OECD's inputs, allowing for modifications and suggestions that more effectively shape international tax policies to benefit both developed and developing countries. This approach ensures that all countries feel included in the debate. Furthermore, the UN could also serve as a creative platform for tax ideas, originating from initiatives of various countries, thereby enriching the internal debate beyond the current initiatives.
The UN resolution that passed in November is historic. Led by the Africa Group and with majority support from member states, the resolution agrees a process to create the first ever globally inclusive body to negotiate tax rules. Since the ability of states to set tax rules depends on a degree of international cooperation, and since tax is the only fully sustainable and independent source of revenues, this is a major step forward for national sovereignty – above all, for those countries that have to date been denied a voice in this crucial area.
The fact that we can even ask how big the UN´s role in tax should be, is a mark of just how far the OECD, the rich countries’ club, has managed to skew the debate.
Let us turn the question around. Given that the UN is the only globally inclusive setting in which tax policy and regulation is currently discussed, how much of a role should be given to organisations like the OECD, which – legally, through the deliberate design of their governance – are required to privilege the views of certain countries over all others?
There’s no question that intergovernmental organisations like ATAF, CIAT, the G-24 and the South Centre, as well as the OECD, can play a useful role in supporting UN decision making. What should now be clear is that no single club of countries has the right to set the rules of everyone else. The UN will now begin to play its role, overseeing genuinely inclusive and transparent rule-setting.
The UN would be the more inclusive forum for creating fair, equitable and development-oriented global tax rules. Developing countries are increasingly dissatisfied with the current OECD-dominated international tax rule-making status quo. Instructively, two developing country OECD members, Colombia and Chile, are strong supporters of the need for a change.
Developing countries’ main critiques of the status quo revolve around three main issues: lack of inclusiveness, questionable effectiveness and lack of fairness. On inclusiveness, the OECD is dominated by developed countries which play a disproportionate role in its agenda-setting. Most of the 145 jurisdictions participating in the OECD’s so-called Inclusive Framework on BEPs are not full OECD members and are therefore not on an equal footing with full OECD members in these discussions. Not all countries are even part of these discussions.
On effectiveness, the current system is also not working. The OECD’s agreed two-pillar solution will not be enough to stem corporate tax abuse. Even the IMF’s largely favourable policy paper describes developing countries’ potential gains as ‘modest’. The two-pillar solution will also be costly to implement, especially for fiscally constrained small States.
On fairness, the current system disproportionately scrutinizes small countries and gives a pass to large countries which have been found wanting in their own tax transparency measures and as being the major enablers of corporate tax abuse, as shown by data from Tax Justice Network.
The UN process will not be a panacea. Indeed, the UN is subject to many of the power dynamics prevalent in other IGOs as exemplified by the COP28talks. However, the UN is the more appropriate and inclusive setting in which countries could work cooperatively to craft fair and development-friendly global tax rules. Now the hard work begins.
There’s a lot to dislike about the OECD’s domination of global tax policy. For one, it has worked in recent decades to coerce non-member nations into adopting policies that satisfy the ideological preferences of high-tax European welfare states. Creation of the so-called Inclusive Framework serves as little more than window dressing to this effort.
The OECD’s current agenda seeks to limit competition and is detrimental to economic growth. Nevertheless, there’s reason to question whether a more prominent role for the United Nations in global tax policy offers any improvement.
The UN has a poor track record on issues it has historically prioritized. The Security Council gives veto power to some of the world’s worst contributors to global conflict, its peacekeepers are plagued by accusations of abuse and ineffectiveness, and its aid programs are rife with corruption.
And though the OECD’s exclusivity of membership offers one kind of problem, the UN’s inclusiveness might be an even bigger one. As a political forum, it often fails to resolve disputes because including all nations necessarily means giving voice and power to illiberal regimes and other bad actors.
In a global economy, tax cooperation between nations is necessary to avoid things like double taxation. Unfortunately, the OECD has focused more on dictating national tax policies than simply facilitating cooperation between the tax systems that nations have already chosen.
Despite these problems, the OECD is the devil we know. There’s little reason to suspect that entrance of the United Nations into the global tax arena would help usher in a better system. At the absolute best, a turf war between the two organizations might reduce the ability of either to undermine fiscal sovereignty but is still probably not worth the cost in added uncertainty and confusion.
As the key international organization that allows all countries to participate on a truly equal footing, and with a long track-record of brokering global conventions, the UN is the only place that can provide fair, effective, legitimate and sustainable global tax governance. Following impressive leadership of the Africa Group, the UN is heading towards the negotiation of a new UN Framework Convention on International Tax Cooperation – a historical breakthrough that is long overdue. The risk that this will lead to “duplication” of other international processes is zero, because the UN process is unlike anything else we’ve seen.
For over 50 years, the OECD has been trying to position itself as the global standard-setter on tax, but despite promises to the opposite, developing countries have never been able to participate on an equal footing in the OECD-led negotiations, and the OECD’s “global” rules, have never reached global endorsement.
At the moment, we have no truly global tax system. The world of tax consists of a patchy spiderweb of bilateral tax treaties, coated with multiple layers of half-implemented, complex and – in some cases, contradictory and politically biased – international guidelines, standards and multilateral treaties, which each come with their own set of technicalities, loopholes and shortcomings. This messy forest of international tax instruments is supplemented by an undergrowth of national approaches and unilateral measures – often driven by a domestic public pressure to reduce international tax dodging by large multinational corporations and wealthy individuals, which is a problem that continues to cost governments around the world hundreds of billions of dollars in lost tax income every year. The negotiation of a new UN Tax Convention provides hope of a fair and truly global reform, which is good news for us all.
It's now the turn of the UN member states.
There is an unrest in the tax world. Digitalization, globalization, emerging technologies and other forces turn the way we do business on its head and challenge existing tax structures. On international level the OECD laid the groundwork to tackle the complex tax questions currently arising through different initiatives as, for example, through the BEPS actions and the two-pillar approach. It is no secret that the driving forces behind these developments are a few countries establishing strong economic power. With the publication of the tax report and the latest vote on an implementation of a new global tax framework, the majority of the 193 UN member states voiced the request to be more involved in global tax policy setting. Through this approach, the much needed perception has been created for the need of emerging countries to foster their representation in international tax policy setting. In a following step, however, it will be crucial for those states and regions currently sensing an underrepresentation of their view to step out from under the umbrella of any international body and to establish a joint market power triggering a financial interest of current leading economies in their involvement in future tax policy discussions. While the UN can be a platform for initiating these efforts, a true impact on global tax policy will depend on the ability of its member states to jointly establish a strong and resilient economic force independent of any over-regional body, be it the OECD or the UN.