Sergio Chaparro-Hernandez ■ What to know and expect ahead of this week’s UN tax negotiations

Empty seats at a UN chamber

In the next six months, United Nations member states will have to decide on the terms of reference for a UN framework convention on international tax cooperation (UNFCITC). This means that they will have to set the roadmap for negotiating the most important international tax instrument ever drafted. This is a once-in-a-century opportunity to redefine the pillars of the international tax system and to make it fully inclusive, just and effective.

The mandate for this task was given by the UN General Assembly to an Ad Hoc Intergovernmental Committee through the adoption of Resolution 78/230 in December 2023 (see the positions that countries adopted on the Tax Justice Policy Tracker and the voting records here). The Ad Hoc Committee must prepare and submit the terms of reference to the General Assembly by August 2024 at the latest.

The timetable for this process is already set and underway. The organisational session, which elected the chair and the bureau that will guide the discussions of the Ad Hoc Committee, as well as other rules for its operation, took place from 20 to 22 February 2024 at the United Nations in New York.

Next up on the schedule is the first substantive session, which will run from 27 April to 8 May. The session will give all countries an opportunity to inform the provisional work of the Ad Hoc Committee on the terms of reference.

What happened at Februrary’s session and what can we expect from the April’s? We delve into this below.

Dispute at the organisational session over decision rules and scope

A very positive development for the international tax discussions is that the organisational session was broadcasted live in its entirety, and anyone with internet access from anywhere in the world could follow it. The high standard of transparency of the discussions that have started at the UN contrasts with the closed sessions that have been held at the OECD on international taxation issues over the past decade.

It is because of this unprecedented level of transparency in international tax negotiations that the Tax Justice Network can make available to the public the transcripts of the sessions, and an account of the positions adopted by states. We can also contrast how these positions relate to the performance of countries on the Financial Secrecy Index, our ranking of countries most complicit in helping individual hide their finance from the rule of law, and the Corporate Tax Havens Index our ranking of countries most complicit in helping multinational corporations underpay tax. The analysis below is based on these tools. We invite other stakeholders to use them extensively to produce their own analysis.

The first key moment of the session was the election of the Bureau to guide the Ad Hoc Committee’s discussions. Egypt’s Deputy Minister of Finance Mohamed Youssef was elected as chairperson. Four representatives of the five regional groups were also elected for a total of 20 members. Although the Bureau is not a decision-making body, its role will be key in organising the work of the sessions and proposing options to bring divergent positions closer together to enable the Committee to move forward and fulfil its mandate.

A second noteworthy development is that several of the 48 countries that had voted against Resolution 78/230 last year are now actively participating in the process. The European Union, for example, which voted as a bloc against the resolution last year, accepted the path set out by the resolution by stating in its initial statement at the organisational session that, “the UN framework convention on tax cooperation can and should serve to further promote tax transparency and fair taxation” (see analysis by the Tax Justice Network’s CEO Alex Cobham on why the European Union should start looking to the UN as the way to achieve the universal tax standards they have sought for themselves).

Following the presentation by the Secretariat to clarify what the mandate to draft the terms of reference of a framework convention means, delegations raised questions on the decision-making procedures and the scope of this task, but none of them at this stage questioned the mandate of the Ad Hoc Committee.

The main controversy in the session was around the decision-making rule under which the Ad Hoc Committee should operate. It is customary for subsidiary bodies of the UN General Assembly, such as the Ad Hoc Committee, to operate under the same rules of procedure as the UN General Assembly. Although these rules imply a strong preference for consensus, and the procedures are geared towards the search for consensual decisions, they also recognise the possibility of taking decisions by simple majority when consensus is not possible, which facilitates the fulfilment of the mandate assigned to the Committee in question.

Broadly speaking, the same bloc that voted against last year’s Resolution 78/230 (and some of those that abstained), initially called for the rules of procedure to be amended so that it could be established that decisions must be taken by consensus – and not, in any scenario, by simple majority. It is worth noting that this bloc of countries is a sample of countries in the top half of the Tax Justice Network’s Financial Secrecy Index ranking (from the United States in the dishonourable 1st place position to Turkey in 59th place).

It is also worth noting that Latin American countries that initially spoke in favour of a consensus rule for the Ad Hoc Committee, such as Chile and Mexico, softened their position during the course of the session. Had this amendment been realised it would have meant, in practice, giving veto power to any of the countries that opposed the resolution. This would then make it more difficult to fulfil the mandate given to the Ad Hoc Committee to draft the terms of reference of a UN framework convention on tax within six months.

The solution adopted by the Ad Hoc Committee was to introduce a paragraph proposed by Colombia which established that “every reasonable effort should be made, within the available time frame for negotiations, to seek consensus on substantive matters”. Prior to this paragraph it was clarified that the Ad Hoc Committee would operate under the same rules as the General Assembly – which in effect implies the possibility of taking decisions by simple majority vote. Although some countries such as Canada, Australia, the UK and others wanted to register their concern on this possibility in the final report of the session, this was not feasible under the rules of procedure.

With the basis for an agreement in place, the Ad Hoc Committee then approved two key documents that will form part of the final report of the organisational session:

  • Annex I: Outline and modalities for the work of the Ad Hoc Committee to Draft Terms of Reference for a UN framework convention on international tax cooperation (preliminary unedited version)
  • Annex II: Modalities for multi-stakeholder engagement in the work of the Ad Hoc Committee to Draft Terms of Reference for a UN framework convention on international tax cooperation (preliminary unedited version)

The discussion at the organisational session to set the agenda of the first Ad Hoc Committee’s substantive session to be held in April and May was also an opportunity for some delegations to raise the problems they believed could be addressed by a UN framework convention on tax. The chair opened the discussion by pointing out, by way of example, the following problems:

  • Full consideration of the existing multinational and international arrangements would leverage existing stance and address gaps and weaknesses in current international tax cooperation efforts and arrangements.
  • Clear and coherent rules that are responsive to changing business models, technological innovation, and globalisation while helping to ensure that taxpayers are neither excessively burdened by these pre-tax rules nor allowed to aggressively avoid payment of tax.
  • Maintaining a fair and equitable balance of taxing rights between residents and source countries.
  • Developing a precise dispute resolution mechanism that considers the capacity of developing countries.
  • Adopting rules that should be adequate and sufficient to discourage illicit financial flows.
  • Addressing the challenges related to the digitalisation of the economy.
  • Addressing the issues of harmful tax competition between countries.

One positive aspect of the subsequent discussion is that some of the most vocal opponents of the idea of a binding tax instrument at the UN spoke up on the content that such an instrument could include. For example, the UK, which had proposed an amendment to last year’s resolution to delete the word “Convention”, argued this time that the framework convention should consider how member states can support each other to increase domestic resource mobilisation through shared best practices and capacity building, as well as issues of climate change and new technologies.

Although several Member States that voted against last year’s resolution mentioned the risk of duplication with other existing instruments, it is important to note that the creation of a new international legal regime, which is the purpose of a framework convention (see section 2), implies the harmonisation of existing instruments with the principles, objectives and obligations of the framework convention. It is only such an instrument that would be able to address, at its root, the risk of duplication and fragmentation under universally shared principles. 

Other states called for a framework convention with a more ambitious scope. For example, Russia suggested that the Convention should make progress on at least five aspects: 1) a multilateral model for the conclusion of international tax instruments reflecting the latest developments of the UN Committee of Experts on Taxation; 2) the creation of a UN Platform to Exchange Knowledge on tax administration given digitalisation; 3) the definition of a global basis to determine the status of tax residence; 4) tax and climate change policy issues; and 5) general criteria for preferential tax regimes.

Colombia went further and added that the framework convention should address inequalities between both individuals and legal persons; inequalities in taxation rights (between countries of residence and source countries); resource mobilisation for climate action and consider the creation of an independent UN tax body in addition to the Conference of the Parties. Caribbean countries, and particularly the Bahamas, raised concerns with blacklisting, as well as the need for predictable rules under a common standard suitable for all countries and transparent global tax governance that promotes equality and considers the perspectives of the Global South.

Also worthy of note was an important discussion that took place in the organisational session about the adoption of early protocols, which are complementary instruments that could lead to tangible outcomes from the process while the negotiation of the framework convention happens. Resolution 78/230 states that the Ad Hoc Committee may “consider the possibility of simultaneously developing early protocols while the framework convention is being developed on specific priority issues, such as measures against illicit financial flows related to taxation and taxation of income derived from the cross-border supply of services in an increasingly digitised and globalised economy”. While some countries, such as Canada, considered that the Ad Hoc Committee should focus only on the terms of reference, the African Group and countries such as Colombia advocate the possibility of advancing early protocols on issues of combating illicit financial flows and on issues of progressive taxation.

The way forward: procedural and substantive issues to draft the terms of reference for a UNFCITC

The organisational session defined the agenda to be discussed at the first substantive session to be held between 26 April and 8 May in New York. In accordance with the participatory mechanisms adopted in Annex II, the Secretariat opened a call for contributions from different actors (including civil society organisations) to inform the deliberation on the procedural and substantive provisions of the terms of reference, as well as on the issue of early protocols. All the inputs submitted are available . At the Tax Justice Network, we align ourselves with the joint submission made by the Global Alliance for Tax Justice and the Civil Society Financing for Development Mechanism as well as with the one made by the Centre for Economic and Social Rights. We contributed also with a complementary submission. With a view to track the demands that States made at the written submissions, we are releasing a compilation on Who Wants what from a UN Tax Framework Convention.

A first discussion that will be critical in the forthcoming sessions is the type of Framework Convention that different actors will push for (the debate on a possible Framework Convention on the Right to Development can be a good proxy of the dilemmas at stake). A Framework Convention consists of the gradual establishment of a legal regime. These instruments usually contain substantive provisions expressed in the form of objectives, principles or general obligations, and institutional provisions, which are aimed to create authoritative spaces (such as the Conference of Parties) to agree on new normative instruments, as well as to define the rules of operation and the mechanisms for the participation of other actors in these spaces. This means a Framework Convention is a flexible approach to the definition of a legal regime, as it defines a common framework for the development of more specific agreements that states may decide to ratify or not.

One of the key debates will be around the balance between the procedural and substantive provisions of the framework convention. Will it be an instrument like the UN Framework Convention on Climate Change (UNFCCC) that focuses on procedural aspects and substantively outlines very general content at the level of principles or objectives? Or will it be an instrument that, in addition to defining procedural aspects, contains more specific substantive guidelines on the type of problems and measures that should be adopted on international tax cooperation, in the way that the WHO Framework Convention on Tobacco Control (WHO FCTC) does? An instrument such as the UNFCCC might facilitate ratification of the instrument by most of the states that could otherwise block the process, but it would weaken the scope of the obligations and create the risk that concrete action would have to wait until the negotiation of protocols on certain issues. An instrument such as the WHO FTCC might establish more demanding obligations but increase the risks that the blockers do not ratify the instrument.

The proposals that have so far circulated in this regard, such as the Economic Commission for Africa’s technical report and associated briefing document; the Eurodad/Global Alliance for Tax Justice draft text for a UN tax convention; the South Center brief, the FACTI Panel report, and the report of the High Level Panel on Illicit Financial Flows out of Africa, imply different balances between substantive and procedural provisions. The Secretariat has published a document for informal discussion containing both a Proposed Outline of Draft Terms of Reference and an annex with an index of possible structural elements of the Convention itself. Complementary analyses have been published by Professor Sol Picciotto and other voices (for real time updates follow our rolling blog).

One way to seek the right balance is to explore for what combination of objectives, principles and specific provisions, using learning from the experience of other similar instruments, would increase the likelihood that all key issues could be addressed under a fair framework with sufficiently robust obligations within reasonable timeframes. This may require that the objective of the framework convention is broad enough to gradually build a framework for cooperation with the mandate to address any international taxation issue that Member States consider relevant. A second step would be to establish a set of comprehensive principles on the just distribution of obligations and benefits to be borne by the parties as part of the global cooperation framework on tax matters created by the instrument, in the way that the UNFCCC establishes, for instance, the principle of common but differentiated responsibilities between states. Finally, a series of more specific provisions could establish mandates for action and clear obligations on certain issues, but the operational details could be addressed in the negotiation of protocols. Tax Justice Network’s input to the first substantive session set out briefly the basis for a protocol on illicit financial flows, but on the basis that such a protocol should form a central element of the convention from the outset we identify the potential for its inclusion in the core text of the convention, rather than as an early protocol. Same can be done with other key issues agreed by State Members.

If the content of the framework convention defined this substantive framework of objectives, principles and obligations, the procedural provisions should be concerned to create an institutional structure that is strong enough to technically support the Conference of Parties and other bodies in the development of the Convention’s mandates.  In addition to endorsing the proposals on the matter from the tax justice movement, the Tax Justice Network’s input proposed the establishment of a UN Centre for the Monitoring of Fiscal Rights – mandated with the task of administering key global public goods such as a global asset register, a public register for tax and fiscal policies, and a public register for corporate transparency – as well as the establishment of an independent secretariat.

The eventually agreed terms of reference will form the basis of a resolution at the next General Assembly, a resolution that will begin the formal negotiations of the convention.

As a conversation starter and an illustration of the potential of the UN framework convention on international tax cooperation, the Tax Justice Network offers a draft operative paragraph for this resolution.

Draft OP3

3.  Requests the ad hoc committee, in developing the draft convention, to adopt a holistic, sustainable development perspective that considers interactions with other important economic, social and environmental policy areas, to take into account the needs, priorities and capacities of all countries, in particular developing countries, and to consider, inter alia, the following indicative elements:

  • general principles, including those of sovereignty and non-discrimination; of effective provision of tax information; of fair allocation of taxing rights; of mutual assistance and cooperation; and of transparency and disclosure;
  • definitions, use of terms and scope, including with reference to the formal UN statistical definition of illicit financial flows;
  • capacity-building and technical assistance, including support to developing countries and collaboration with international organisations;
  • review and monitoring of the convention’s implementation;
  • establishment of a Conference of the Parties, and main modalities including its mandate, procedures and schedule;
  • multilateral, automatic exchange of information about financial accounts and related asset classes, without the requirement for immediate reciprocity from developing countries;
  • good governance practices and transparency in financial transactions to prevent illicit financial flows and enhance the integrity of the international financial system;
  • international cooperation, coordination and transparency in the recovery of assets derived from illicit financial flows;
  • transparency of the beneficial owners of companies, trusts, partnerships and other legal vehicles, through public registers;
  • transparency of the economic activity of multinational groups through the requirement for annual publication of country by country reporting data at the company level, in line with the Global Reporting Initiative standard Tax:207 and/or other robust standards;
  • appropriate public disclosures including tax policies and practices, by national tax authorities to strengthen public accountability and effective cross-border cooperation;
  • common principles for effective and independent enforcement by tax authorities;
  • unitary taxation based on formulary apportionment, in order to ensure corporate tax is levied in the jurisdictions where the underlying real economic activity takes place;
  • dispute resolution procedures, including through mutual agreement;
  • common principles for the taxation of wealth;
  • the establishment of a UN Centre for Monitoring Taxing Rights, with responsibilities including:
    • a global asset register, combining public data components and components held privately for tax authorities and other enforcement bodies, to underpin the fight against illicit financial flows including tax abuse;
    • a UN public registry for tax and fiscal policies;
    • a UN public registry for corporate transparency; and
    • publication of regular analyses of progress, including in support of Sustainable Development Goals 16.4 (illicit financial flows) and 17.1 (taxation); and
  • the establishment of a secretariat for the convention, with responsibilities including support to the Conference of the Parties, and the UN Centre for Monitoring Taxing Rights.

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