5 fallacies to expect from UN tax talks detractors and how to counter them

The second and final round of negotiations of the Terms of Reference for a UN Tax Convention has started in New York City (see our recap blog on what happened in the first round). It is in the best interest of any person, no matter where they live in the world, that UN Member States negotiate in good faith in this process. At stake is that countries make the most of this once-in-a-century opportunity to come up with robust guiding parameters that pave the way for an international instrument that develops the duty to cooperate internationally on tax matters and puts an end to global tax abuse – which is on course to cost countries nearly US$5 trillion in the next 10 years if global tax rules aren’t fixed. Tax is our social superpower, and our governments are desperately in need of these essential resources to fulfil people’s rights and tackle the most pressing global problems, including the climate emergency.

Unsurprisingly, members of the rich countries club the OECD are continuing to throw obstacles at the UN tax talks. The OECD, whose members includes some of the most harmful tax havens, has served as the world’s de facto rule-maker on global tax for over sixty years and its opaque and non-inclusive processes have been widely criticised and blamed for our currently broken global tax rules, which lose just about half a trillion dollars to tax havens every year. That’s why a landslide majority of countries voted at the UN last year in favour of moving decision-making for the OECD to the UN. But OECD members are still trying to keep decision-making on global tax rules, even though top UN human rights experts have said the OECD’s plans for new global tax rules are incompatible with anti-racism and anti-sexism laws, will make even harder for lower and middle income countries from losing taxes to tax havens, and “could have a discriminatory impact on the grounds of gender, ethnicity and race.”

In anticipation of the negotiations, we’ve compiled a guide to the five main fallacies that rich OECD countries will likely use to try to derail progress in the talks. In order not to lose the privilege of setting the agenda on international taxation issues, these countries are making a short-sighted interpretation of their own national interests, and they are opposing an ambitious international instrument (see full our database on who wants what from the UN tax negotiations). We provide insights on how to respond to each of these fallacies with a view to avoid distractions from the aim of achieving the best possible outcome to secure a fully inclusive and truly effective international tax cooperation framework that benefits all countries.

Ultimately, a broken, opaque and non-inclusive global tax system is bad for everyone, despite OECD countries’ attempts to keep it so. OECD countries are responsible for facilitating over three-fourths of the tax losses countries suffer every year to global tax abuse. At the same time, they are also the world’s biggest losers to tax abuse. This is a lose-lose game that results in the world handing over nearly half a trillion dollars of public money to the wealthiest multinational corporations and superrich individuals. Moving global tax policy from the OECD to the UN, where transparency, democratic process and human rights obligations prevail, is our best shot for fixing our global tax system. All countries will benefit from UN leadership on global tax policy, including the OECD countries who are putting power before prosperity.

1. The fallacy of duplication

A first objection that will recur against an ambitious UN framework convention on tax is that this instrument should not duplicate work that has been done in other fora. This objection, however, ignores the fact that this is – literally – the very first time that a legally binding instrument governing international tax cooperation is being negotiated in a universal and inclusive forum.

While there are international and multilateral agreements on tax matters, the UN Secretary-General’s 2023 report requested by the General Assembly notes that “they do not satisfy the main elements for fully inclusive and more effective international tax cooperation”. This does not mean that the progress that may have been made through these instruments should be dismissed, but they would have to be brought into line with the objectives, principles and commitments defined by the framework. 

The Secretary-General’s report argued that rather than duplicating existing processes, a UN intergovernmental process would leverage existing strengths and address gaps and weaknesses in current international tax cooperation efforts. Indeed, unlike technical guidance or assistance work that institutions such as the International Monetary Fund or the World Bank might develop, the UN undertakes collective norm-shaping through an intergovernmental process that can take into consideration the needs of countries at different levels of development. This is why the report considered that “enhancing the role of the United Nations in tax-norm shaping and rule-setting appears the most viable path for making international tax cooperation fully inclusive and more effective”.

The fallacy of duplication takes different forms in State Members’ submissions. For example, several countries argue that paragraph 20 of the negotiating draft text, which states that “throughout its work, the intergovernmental negotiating committee should take into consideration the work of other relevant forums, potential synergies and the existing tools, strengths, expertise and complementarities available in the multiple institutions involved in tax cooperation at the international, regional and local levels”, should be elevated to a principle. Moving this paragraph from the section on negotiating approaches up to become a principle would significantly undermine the flexibility of the negotiating committee necessary for negotiators to assess which elements of existing instruments should be included in the framework and which should not (according to their coherence with other elements of the framework) on a case-by-case analysis. In other words, it would limit the UN framework convention’s ability to fill the existing gap in the international cooperation on tax which this whole process aims to address, and which costs all countries dearly in tax losses every year.

The same group of countries arguing in favour of making paragraph 20 a principle often also  argued that the commitments to be included in paragraph 10 of the terms of reference should exclude any issues that are being or have been addressed by other fora, and particularly by the OECD. In a similar vein, the UK, for example, proposes to include principles of subsidiarity or comparative advantage in the terms of reference so that the framework convention only includes issues that are not being addressed by other instruments. All of this would counterproductively restrict the scope of the framework convention, as it would prevent the UN from applying the universally adopted objectives and principles of the framework convention to key areas where current standards are not satisfactory ― for instance,  corporate taxation standards covered by the OECD’s faltering two pillar agreement, which UN human rights experts say are incompatible with anti-racism and anti-sexism laws.

The point of the framework convention is to allow all countries to be included in setting international tax rules. It would be ridiculous to argue that the framework convention should not apply to areas where some countries only have already had a chance to participate in rule-setting.

2. The fallacy of fragmentation and uncertainty

A recurring and related objection is that including issues dealt with in other fora in the framework convention would create the risk of fragmentation of global tax rules and consequent legal ambiguity. According to this position, expressed by the UK in its submission, international tax cooperation could be weakened over the coming years because of fragmentation, which would increase the prospect of regulatory arbitrage and illicit financial flows. In addition, inconsistent rules could lead to double taxation, which would discourage foreign investment.

This reality-denying objection ignores the current proliferation of double taxation treaties and rules adopted in fora without universal acceptance is already resulting in exactly the type of fragmentation and ambiguity the UK is warning about – and that the UK’s financial centre notoriously exploits to undermine other countries’ tax revenues. And it ignores the fact that a UN framework convention is precisely the best instrument for putting an end to this fragmentation and ambiguity.

Contrary to what countries such as the Netherlands claim in their submissions, there is no functional, cohesive and predictable system of global tax governance today. On the contrary, the framework convention is how we can finally create cohesion. The risk of competing standards could be addressed if, as suggested by the Africa Group in the first round of submissions, provisions were made around a transitional regime. In the first round of negotiations, Brazil also raised the need to reconsider bilateral treaties through an expedited review procedure considering the adopted framework.

3. The fallacy of consensus-only outcomes in a world desperately in need of prompt solutions

One of the demands most insisted upon by the EU and other rich OECD countries is that at this stage of the terms of reference, discussion should mainly focus on procedural aspects, and in particular those that have to do with decision-making rules. These countries argue that in international taxation matters, by virtue of the principle of sovereignty, the rule of consensus should prevail. Consensus would be the way to ensure broad acceptance and commitment to the implementation of the framework convention.

A consensus rule in practice can mean that a single country has veto power over a reasonable agreement that all other countries are in favour of – which in international taxation matters may make agreements virtually impossible. Contrary to what is usually claimed, the OECD’s “Inclusive” Framework has not adopted many of its decisions by consensus. Not only does the “Inclusive” Framework fall far short of having  universal membership, its decision have been made in direction opposition to strong, public objections by its members see the Litany of Failures report we co-published with partners for more information on this.

The UN General Assembly’s rules of procedure strive for consensus, but wisely recognise that to advance the solutions the world urgently demands, other decision-making mechanisms may be necessary when consensus is not possible. The field of international taxation should be no exception to this, and the rules of the subsidiary bodies of the General Assembly ― which do not outlaw the simple majority rule as a valid decision-making mechanism when needed ― are well established.

The group of countries supporting consensus as a decision-making mechanism has found some precedents in UN resolutions that have established decision-making rules different from the usual procedures of UN subsidiary bodies. However, in a context where multilateralism is being questioned for its inability to respond in a timely manner to pressing problems such as the climate emergency or the fulfilment of the Sustainable Development Goals it is worth asking if special rules should be introduced in this case. Establishing a veto power by introducing consensus as the sole decision-making mechanisms on international tax cooperation – which is a critical area for mobilising resources for these and other agendas – may reinforce the perception that multilateral solutions required very demanding requirements that impede them to move forward with any meaningful agreements. The current UN tax convention process is a golden opportunity to restore confidence that multilateralism can deliver timely solutions – and preserving the possibility of using alternative decision-making rules when consensus is not possible seems essential to put healthy pressure on Member States to seek agreements in good faith.

4. The fallacy of focusing on the less controversial topics

Another recurring objection to addressing the issues on which rich OECD countries have so far had the power to set the agenda is that the framework convention should focus on less controversial issues.

If multilateralism were to focus on less controversial issues, it would probably not respond to the world’s most pressing problems. What the world expects from this process is not to make easy progress at the margins (‘low-hanging fruit’ victories), but to deliver structural solutions to the major problems that result from failures in international tax cooperation (eg curbing tax-related illicit financial flows and harmful tax abuse) – regardless of, or indeed precisely because of how controversial and challenging these problems may be.

The point of a UN framework convention is to move beyond the OECD’s failed reign over global tax rules and in particular its dead-in-the-water 10-year long reform attempt at stopping the half a trillion losses in tax countries suffer to tax havens every year. Insisting that the UN framework convention should deal with minor issues on the sidelines while countries haemorrhage urgently needed public money is like asking the UN framework convention to build safety rails on the deck of the titanic.

5. The fallacy of undertaking thorough analysis to take any meaningful step

Finally, one of the objections to taking decisions on what commitments should be included or what protocols to prioritise at early stages in the terms of reference, is that a thorough analysis must be conducted first.

The General Assembly adopted a resolution to start intergovernmental negotiations towards a UN tax convention because most countries found that the status quo of international taxation is not working and there is ample evidence of this. When rich countries demand to start from scratch and carry out more diagnosis analysis before making even the most basic decisions on which topics the framework convention should cover, their commitment to promptly moving forward on solutions that work for all countries is not quite credible.

The failures of international tax are clear, and addressing the damage done to our societies is an urgent priority. Analysis is evidently needed – but as part of the process of reform, not as a precondition. It is time to stop making excuses and start solving the problems.

The second round of UN tax talks are running from 29 July to 16 August. Check out our rolling blog for updates on the negotiations. The negotiations sessions can be watch live on UN Web TV here.