UN Global Tax Treaty

Overview

The UN’s Ad Hoc Committee has approved a framework to establish a UN Global Tax Treaty, aiming to create a legitimate, fair, stable, inclusive, and effective international tax system. This initiative has garnered significant support from developing countries, including India, while facing opposition from industrialized nations such as Australia, Israel, Japan, the UK, and the USA.

Objectives of the UN Global Tax Convention

• Strengthening International Tax Cooperation: The treaty aims to enhance collaboration among nations to address tax challenges arising from globalization and digitalization, especially concerning large Multinational Corporations (MNCs).
• Mobilizing Domestic Resources: It seeks to utilize tax policy as a tool for sustainable development, enabling countries to effectively harness their domestic resources.
• Implementing Global Frameworks: The convention aims to accelerate the implementation of the Addis Ababa Action Agenda on Financing for Development and the 2030 Agenda for Sustainable Development Goals (SDGs).

Commitments of the UN Global Tax Convention

• Fair Allocation of Taxing Rights: Ensures equitable taxation of MNCs to prevent tax base erosion and profit shifting.
• Addressing Illicit Financial Flows: Focuses on combatting tax evasion and avoidance by high-net-worth individuals, and tackling tax-related illicit financial flows.
• Taxation of Cross-Border Services: Provides a framework for taxing income generated from cross-border services.
• Administrative Assistance: Promotes effective mutual administrative support in tax matters and resolves tax disputes between nations.

Relation to Other Global Initiatives

• The UN treaty complements the OECD Global Minimum Tax initiative, which mandates that MNCs pay a minimum tax rate of 15% in each jurisdiction where they operate. This measure is designed to reduce the incentives for profit shifting by ensuring that corporations contribute a baseline level of taxes.

Conclusion

The UN Global Tax Treaty represents a significant effort to reform international tax systems to be more equitable and sustainable, especially for developing countries. Its success will depend on global cooperation and commitment to addressing long-standing tax challenges in an increasingly interconnected economy.