UN Unveils Blueprint for Global Tax Reform

GS Paper II

News Excerpt:

In response to the urgent need to reform the global tax system, the United Nations has unveiled the outline of a new universal tax compact, a historic step toward reshaping the financial landscape.

More details about the news:

  • This initiative aims to support countries worldwide in fostering economic growth and achieving the 2030 Agenda for Sustainable Development, including its 17 goals.

Why is a New Convention Important?

  • The UN tax convention signifies a major shift in international taxation, with the potential to fundamentally transform global financial systems and how tax revenues are utilized for public benefit.
  • The UN’s Ad Hoc Committee, tasked with drafting the terms for this international tax cooperation framework, has made significant progress by approving a comprehensive set of guidelines for the new treaty.
  • Enhanced international tax cooperation is crucial for addressing current tax-related challenges, such as digitalization and the global operations of large multinational corporations.
  • It also plays a vital role in mobilizing domestic resources and using tax policy to promote sustainable development.

What Will the UN Tax Treaty Include?

  • The UN framework convention is expected to create an inclusive, fair, transparent, efficient, equitable, and effective tax system that supports sustainable development across economic, social, and environmental dimensions.
  • It will likely include commitments to equitable taxation of multinational companies, tackling tax evasion and avoidance by high-net-worth individuals, and ensuring their effective taxation in relevant Member States.
  • The framework will also be accompanied by two legally binding protocols, one of which will address the taxation of income from cross-border services in an increasingly digitalized and globalized economy.

How Can a UN Tax Treaty Benefit the Global South?

  • An inclusive tax cooperation framework can effectively address the need to strengthen domestic resources, enabling all countries to fund and promote policies that align with the 17 Sustainable Development Goals (SDGs).
  • The global tax convention is designed to ensure that large multinationals pay their fair share of taxes, regardless of where they operate.
  • This is expected to generate significant additional tax revenues for many countries, particularly those in the Global South, thereby enabling governments to finance essential infrastructure, education, health services, and climate action.

Is There Consensus on a Global Tax Treaty?

  • While developing countries largely support the initiative, some industrialized nations have expressed reservations.
  • In the Ad Hoc Committee’s recent vote, 110 Member States supported the terms of reference for the new treaty, while 44 abstained, and eight countries—Australia, Canada, Israel, Japan, New Zealand, South Korea, the United Kingdom, and the United States—voted against it.

What Are the Next Steps?

  • The Ad Hoc Committee’s terms of reference will now be forwarded to the UN General Assembly, which will vote on the proposal during its 79th session starting in September.
  • If adopted, a Member State-led negotiating committee will be established to draft the convention and its protocols over the next three years.
  • The final text would be presented to the General Assembly in early 2027, allowing all 193 UN Member States to vote on the finalized global tax treaty.
  • Once approved, the treaty will be opened for signature and ratification by all Member States.

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