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Sergio Chaparro-Hernandez ■ Trump’s walkout fumble is a golden window to push ahead with a UN tax convention

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The negotiation of the UN Framework Convention on International Tax Cooperation kicked off this week in New York where all delegates who spoke, from every region of the world, affirmed their country’s commitment to the principles of the UN tax convention. The only objection made came from the United States, which urged delegates to walk out of the room with it.

The opening gambit backfired. No country answered the US delegate’s plea, who proceeded to walk out alone, leaving the US isolated.

UN Member States now have a golden opportunity to prove their stated commitment to the process by addressing, without the US disrupting negotiations, the key issues of the organisational session without delays.

Table of content:

Introduction
Why would a UN tax convention benefit all states? 
What’s wrong with existing standards? Why do we need to change them? 
Is the UNFCITC an instrument that is only of interest to low- and middle-income countries? 
Why the UNFICTC won’t duplicate progress made in other fora?
What will be decided in the organisational session and why is it important?
Why consensus as the sole rule for decision-making is inconvenient for the process?
Unblock the Future (Protocols): Your Pledge to Progress
A call to choose cooperation

Introduction

In international relations, it’s often said that countries have neither friends nor enemies, only interests. With Trump back in the White House, the geopolitical arena is undergoing a seismic shift, compelling nations to rethink what defending their national interest truly entails. The realm of international taxation is caught in this upheaval, and the UN Framework Convention on International Tax Cooperation (UNFCITC) negotiations began with a failed attempt of the US to undermine this process. After delegations from all regions had expressed their interest in engaging constructively in the process, the United States arrogantly walked out of the negotiation arguing that it was not aligned with its priorities and called on other states to do the same.  

Against this backdrop, the stage is set for negotiations this week to be the battleground where countries’ ability to grasp that cooperation is essential to enforcing their sovereign tax policies, and safeguarding their peoples’ interests will be tested.

What’s on the line? Roughly half a trillion dollars a year to be clawed back from cross-border tax abuse, as reported in our State of Tax Justice 2024 report (see the report for  country level estimates). And that’s just what can be clawed back from direct losses – the IMF estimates countries’ indirect losses to cross-border tax abuse are three to six times larger than their direct losses.

The weeks leading up to the start of negotiations had been full of upheaval. Shortly after taking office, Trump issued a memorandum that dealt the death blow to the OECD’s Two Pillars agreement. He also instructed the US Treasury to develop “protective measures” against countries whose tax policies the new administration deems to have an “extraterritorial” or “disproportionate” impact on US-based multinationals. Essentially, this move by the new administration signals a potential retaliation against what was seen as a shared goal of the international community. The goal is to tax cross-border activities based on where real economic activity takes place, irrespective of the location of the multinational’s headquarters, in alignment with the sovereign decisions of individual states, and to address other shared global challenges through cooperation among states.

About a hundred years ago, agreement eventually emerged between the imperial powers at the League of Nations on the need for a set of tax rules that the imperial powers can use to divvy up taxing rights over one another’s companies when they operated within each other’s territory. It took another 90 years for agreement to emerge that these rules should more accurately divvy up taxing rights based on where real economic activity takes place, and must be enjoyed by all countries, not just now former-imperial powers. And another 10 years to arrive at a proposal to implement this new agreement, albeit one that was too weak and too biasedly in favour of rich countries to make a real difference.

It took Trump just a few hours into his second term to do away with all this. Not only did Trump withdraw the US from the OECD’s global minimum tax proposal, he signalled plans to question and take punitive measures against the right of any country to tax American multinational corporations, effectively turning US tax policy back to a pre-League of Nations standing – to a time when companies could only be taxed by the imperial power they came from, regardless of where they were making their money.

In effect, the Trump administration made it clear that it intends to demand that countries cede their tax sovereignty over multinationals operating within their own borders – or face economic siege.

In a context where the US administration appears to view its tax sovereignty as incompatible with that of other states, its withdrawal from the negotiation comes as no surprise. However, the UNFCITC negotiation emerges more clearly as the only viable option for achieving the multilateral agreements on international tax issues that the world urgently requires (see our historic coverage of the path towards this stage of the process in our rolling blog). Faced with a US administration adamant on a might-is-right attitude towards taxing rights, the UNFCITC is essential to protecting the tax sovereignty of all countries.

These negotiations aim to create a more inclusive and equitable framework for international tax cooperation, addressing challenges such as tax evasion, avoidance, and harmful tax practices, effective mutual administrative assistance in tax matters, the alignment of international tax cooperation with the economic, social and environmental dimensions of sustainable development, and a fair allocation of taxing rights, which are particularly pressing for developing nations but will reap benefits for all countries (see our analysis on the Terms of Reference adopted by the General Assembly in November 2024 that will guide these negotiations).

Countries such as the UK, Canada, Australia, New Zealand, Japan, and members of the European Union, which have so far been hesitant to fully support these negotiations, now face a critical choice. They must decide whether to work constructively with the African Group and the Global South bloc of countries, which have been instrumental in advancing this process, or to abandon any hope of exercising their taxing rights over major multinationals for at least another four years, effectively yielding to the coercive tactics of the US administration (see an analysis of the fallacies used by UN Tax talk detractors and how to counter them).

Trump’s actions over the past few weeks have put the US’s cards on the table for these hesitant countries – and their people – to openly see. While previous US presidents finessed a double game, promising to abide by the OECD outcomes they controlled but never doing so, Trump has clumsily given the game away by pulling the plug on the OECD process, walking out of the most important tax negotiations of our lifetime, and threatening tax war.

This double game didn’t just benefit the US, it allowed the governments of OECD countries to save face in front of their people, publicly feigning an equal footing with the US on OECD decisions that impacted tax policy at home. Trump has now ended the façade, and called out other OECD members’ new clothes.

He has made it clear that there is no fair negotiation table at which the US will sit, so countries should have no qualms about pressing on with negotiations at the UN without the US. The early US withdrawal shows that this is a position irrespective of the dynamics of the negotiations – in fact, in spite of parties beginning to show constructive flexibility in order to reach agreements.

This is a spectacular own goal for the US. It is a movement that negatively affects the interests of its own people and US multinationals. The impossibility for states to adopt common rules for multinationals, including those headquartered in the US, to pay taxes where their economic activities take place would mean, in practice, the surrender of state sovereignty. And without the OECD double game to save face, governments that have so far been hesitant to the UNFCITC will not be able to hide this surrender of sovereignty. The choice is clear, both to governments and their people: defend your tax sovereignty by cooperating at the UN or raise the white flag to the new bully.

It’s time for all countries to work together and make the most of Trump’s own goal.

Why would a UNFCITC benefit all states? 

The lack of effective and inclusive international tax cooperation harms all nations. Despite differing views on the desirable distribution of costs and benefits of cooperation on tax matters, all countries and their citizens —including the US — would benefit more from full cooperation than from the limitations of the current standards. States have opted for cooperation on tax issues because, in today’s global economy, enforcing their own sovereign decisions on how to tax cross-border activity necessitates collaboration with other countries. The advantages of such cooperation would be significantly amplified if a multilateral tax treaty fit for present and future challenges were ratified by the vast majority of United Nations member states, a feat not yet accomplished by any other fora. The challenge lies in crafting an international agreement that is acceptable to as many parties as possible, thereby maximising the overall benefits of cooperation. 

What’s wrong with existing standards? Why do we need to change them? 

While significant strides have been made in international tax cooperation over the last decade, the current standards fall short of being inclusive and effective, as highlighted in the UN Secretary-General’s 2023 report. This has resulted in an asymmetric cooperation landscape, which is less beneficial compared to what fully inclusive and effective cooperation could achieve.

For example, an information exchange mechanism would yield greater benefits if all UN member countries participated. The exclusion of even a single member diminishes the accessible information and the potential for exchanges among all participants. When a large group is excluded, the scope of the mechanism for any participating country is significantly narrowed and the legitimacy and equity of the mechanism left open to question. Currently, 125 countries are signatories to the CRS Multilateral Competent Authority Agreement on Automatic Exchange of Information, but this falls short of the 193 UN Member States. Moreover, requirements like the immediate duty to reciprocate can pose significant barriers for countries with limited capacities, often those in greatest need of the benefits from international tax cooperation. The exclusion of these countries not only disadvantages them but also reduces the overall potential benefits for countries already participating under the current framework. 

Although several multilateral tax agreements exist, none encompass all nations globally. The UNFCITC presents an opportunity to establish universal standards that are adaptable to the varying capabilities of different countries, thereby maximising the benefits of international tax cooperation. 

Is the UNFCITC an instrument that is only of interest to low- and middle-income countries? 

The UNFCITC is often viewed as advantageous for countries in the Global South, but it presents substantial opportunities for all nations genuinely committed to a fully inclusive and effective international tax cooperation. For example, Australia, with its recently adopted world-leading standard for public country-by-country reporting, could leverage the UNFCITC to push for global adoption of these practices, despite its opposition to the UN resolutions that opened the door for the negotiation of this instrument.  

Similarly, most EU countries, which have struggled with the need for unanimity in tax decisions within the bloc, could collaborate with nations from different regions to push forward tax cooperation on a global level through the UNFCITC. Here, dissenters could voice their opposition but wouldn’t have veto power, allowing for broader agreement while giving countries the option to opt out of specific protocols. 

Even the United States, ironically, might find that the scenario of widely accepted UNFCITC offers stable, uniform global tax rules beneficial for its companies. Currently, the US has withdrawn from these negotiations with a short-sighted view of its national interest, citing the objectives of the instrument as overreaching and potentially detrimental to all nations. However, it may be the case that in the future, the US corporate sector might pressure the administration to re-enter negotiations to safeguard their interests.

The proliferation of multiple, parallel international tax regimes would elevate compliance costs and complexity for companies, thereby highlighting the advantages of a unified framework. Whether the US adheres to its announced withdrawal of the negotiations or reconsiders its stance—as it has with unilateral recent tariff decisions against several countries in the past few days—it might come to appreciate the value of such an agreement. This would help in averting a patchwork of unilateral tax policies that could otherwise complicate international business operations.

This potential future scenario is reminiscent of the OECD’s Common Reporting Standard (CRS), which only gained traction after the US unilaterally implemented the Foreign Account Tax Compliance Act (FATCA), compelling other countries to adopt automatic information exchange. This action followed a decade after the EU had already promoted a multilateral approach with its own system for internal information exchange. That progress in harmonising international cooperation measures could take place along a similar path once the UNFCITC enters into force cannot be ruled out at this stage.

Why won’t the UNFICTC duplicate progress made in other fora?  

As the crisis over the implementation of the OECD’s Two Pillar agreement deepens, the objection that the UNFCITC might duplicate work from other fora becomes increasingly baseless. In fact, the UN Framework Convention on International Tax Cooperation (UNFICTC) is emerging as a potent multilateral instrument to truly fulfil the original mandate given to the OECD by the G20, which the Two Pillars agreements, even if they had been universally adopted, would have fallen far short of due to their failed design. 

For the coherence of the governance system created by UNFCITC, it is necessary that the standards adopted are compatible with the framework that is agreed in an inclusive manner in the context of a truly universal forum. This alignment is crucial to prevent fragmentation. While this approach does not dismiss the progress made in specific areas to date, it does mean that negotiations aren’t starting anew. Instead, countries should evaluate which standards best fit within the new framework, taking elements from other fora which can be validated through a truly inclusive and effective universal system.  

Some states have voiced concerns about starting from scratch in a new negotiation forum, especially when discussions on similar issues within the OECD have been ongoing for years. However, paragraph 22 of the Terms of Reference addresses these concerns by mandating that the intergovernmental negotiating committee should consider work from other forums, explore synergies, and leverage existing tools, expertise, and strengths from various international, regional, and local tax cooperation entities.

Together with the inclusion of the principle of human rights and several other elements that were modified with respect to the initial versions of the zero draft of the terms of reference, these changes show that, contrary to the possible allegation by rich OECD countries, the views of the different states participating in the process have been included in the decisions made by the Ad Hoc Committee that drafted the terms of reference. Unlike what has happened in the OECD’s closed-door negotiations, the ability for anyone in the world to follow these public negotiations provides the information necessary to monitor and scrutinise the work of the chair or the bureau and thus provides a greater guarantee of inclusiveness and transparency for all states.

What will be decided in the organisational session and why is it important?

During organisational sessions of UN conventions, one can expect decisions that lay the groundwork for the work of the Ad Hoc Committee that will draft the instrument. These sessions typically involve setting the agenda for future meetings, which outlines the topics to be discussed. Key procedural rules are established, including how decisions will be made, and the selection of leadership roles like chairs, bureau members and rapporteurs. The modalities for stakeholder involvement, including how NGOs, private sectors, and civil societies can contribute, are also decided upon. Logistical arrangements, like the scheduling and location of subsequent meetings, are confirmed. Moreover, these sessions often address the review or adoption of key initial decisions that will set the tone for future negotiations. These decisions ensure that the convention operates smoothly, with clarity and direction, facilitating global dialogue and action on the convention’s core issues.

The organisational session of the Intergovernmental Negotiating Committee on the United Nations Framework Convention on International Tax Cooperation, scheduled from 3-6 February 2025, has focused on several critical discussions (see adopted agenda here). The session began with the election of officers as per rule 103 of the General Assembly’s rules of procedure, where the Committee will elect a Chair, 18 Vice-Chairs, and a Rapporteur, ensuring equitable geographical representation and gender balance as outlined in paragraph 6 of resolution 79/235. Following this, the Committee proceeded to adopt the agenda, in line with rule 99 of the rules of procedure, adopting programme of work as prepared according to Assembly resolution 79/235.

Other key decisions include the establishment of the negotiation modalities for the coming years, particularly emphasising the decision-making processes of the negotiating committee. Another pivotal discussion will involve the selection of the second early protocol to be negotiated alongside the convention until 2027. Options for this protocol include dispute resolution and prevention, addressing illicit financial flows, and the taxation of high-net-worth individuals, with the first protocol already set to tackle the taxation of income from cross-border services in a digital and globalised economy.

Why consensus as the sole rule for decision-making is inconvenient for the process? 

Decision-making procedures in the United Nations are consensus-oriented, but do not exclude the possibility of majority voting when time requires it and the possibility of super-majority votes for the most important decisions. The rules of procedure of the subsidiary bodies of the General Assembly are well established and experience shows that it is not appropriate to grant any country veto power, which is what happens when consensus is adopted as the sole rule for decision-making. The US withdrawal from the negotiations clearly demonstrates why veto power may be at odds with the mandate of the Intergovernmental Committee. Under a consensus rule, the threat of a veto means that all states would have to give disproportionate weight to the demands of one state  to prevent that country from blocking the entire process, which is not only unfair but may make it impossible to fulfil the mandate of the Intergovernmental Committee within the set period. The decision to operate so far under the rules of the General Assembly has been a wise choice.

While some UN Conventions have indeed been adopted by consensus, this has predominantly occurred during significant political gatherings, such as the Earth Summit in Rio de Janeiro in 1992. Here, landmark conventions like the United Nations Framework Convention on Climate Change (UNFCCC), the Convention on Biological Diversity (CBD), and later in similar contexts, the United Nations Convention to Combat Desertification (UNCCD), were all adopted by consensus. However, when it comes to Ad Hoc Committees or other subsidiary bodies of the General Assembly, the experience has been markedly different.  

The United Nations Convention on the Law of the Sea (UNCLOS) provides a pertinent example. Despite starting with the aim of achieving consensus, the negotiations for UNCLOS were fraught with disagreements, particularly over issues like the deep seabed and economic zones. Ultimately, after years of negotiation, when consensus could not be reached at the Third United Nations Conference on the Law of the Sea, the convention was adopted by a recorded vote in 1982, reflecting the failure of consensus as a decision-making mechanism in this context. 

Other examples are also illustrative in this regard. For instance, the Ad Hoc Committee for the Arms Trade Treaty (ATT) attempted to adopt the treaty by consensus in 2013 but failed due to objections from a few states, leading to the treaty’s adoption through a vote in the General Assembly. Similarly, the Ad Hoc Committee on Measures to Eliminate International Terrorism has often struggled with consensus to adopt a Comprehensive Convention on International Terrorism (CCIT), frequently resorting to alternative decision-making mechanisms. Another example of the failure to reach consensus at UN bodies is evident in the ongoing discussions surrounding the Convention on the Rights of Older Persons. Despite years of debate within the Open-Ended Working Group on Ageing, established in 2010 to strengthen the protection of older persons’ rights, there has been no agreement on creating a new, legally binding international instrument.

More recently, the experience of the Intergovernmental Negotiating Committee on Plastic Pollution illustrates similar challenges. This committee, tasked with developing an international legally binding instrument on plastic pollution, has faced significant hurdles in achieving consensus among member states. The negotiations, ongoing with sessions from 2022 to 2024, have shown that while there is a common goal to address plastic pollution, the diversity of interests, particularly around production, waste management, and binding versus voluntary measures, has made consensus elusive. Despite the ambition to conclude by the end of 2024, the process has seen multiple sessions where consensus was not achieved on key elements, suggesting that if a final agreement is reached, it might require reverting to majority voting or other decision-making methods. 

Some countries have suggested that since taxation is a matter that touches on the core of state sovereignty, there can be no rule other than consensus. However, it should be stressed that with the adoption of the established rules of the General Assembly and its subsidiary bodies, which allow for decision-making by simple majority, no country will lose the sovereign prerogative to decide whether to ratify the Framework Convention. The final word on whether to keep engaged in the negotiations, or to ratify the instrument resulting from the process, will remain being a sovereign decision of each state.

Unblock the Future (Protocols): Your Pledge to Progress

In the negotiations surrounding the UNFCITC there is a clear mandate for the Intergovernmental Committee to deliver results within the next three years. This urgency necessitates prompt decision-making during the organisational session, including the selection of the second protocol without unnecessary delays. One potential tactic to obstruct progress could involve arguing that procedural decisions require further clarity on substantive issues. However, this is a misstep since organisational sessions are specifically designed to establish the basic operational framework for later substantive discussions. These sessions are not meant to define the scope or content of specific thematic areas or agree on the meaning of some terms but rather to set the stage for state members to have these conversations in the next sessions. The Secretariat has initiated the good practice of providing background documents with the necessary elements for states to make informed decisions (as in the case of the potential scope of the issues that the second protocol may cover). This strengthens confidence in the process and shows that the United Nations is an appropriate forum to properly conduct these negotiations. Thus, the focus during the organisational session should be on procedural clarity —such as selecting the subject matter of the second early protocol in the terms that the Terms of Reference set— to facilitate the substantive work ahead.

A call to choose cooperation

States are urged to engage constructively in the negotiations for the UN Framework Convention on International Tax Cooperation, adhering to the principles of negotiating in good faith. This means having a clear and well-supported position, being open to finding solutions rather than adopting an inflexible stance and moving forward without unnecessarily revisiting previously settled issues. It involves a readiness to compromise and support outcomes where they have had significant influence and avoiding tactics to obstruct progress. Such conduct not only upholds a country’s image but is crucial for establishing trust among nations. In a world that desperately needs multilateral solutions, choosing cooperation is not just a choice—it’s the right choice.

Image credit: Gage Skidmore from Peoria, AZ, United States of America, CC BY-SA 2.0, via Wikimedia Commons

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