Bisnis.com, JAKARTA – The United Nations (UN) will begin negotiations for the Framework Convention on International Tax Cooperation. Experts believe the Global Tax Convention can reduce economic disparities between wealthy and developing countries.
Meliana Lumbantoruan, Deputy Director of Publish What You Pay (PWYP) Indonesia, asserts that the UN Global Tax Convention is a step towards addressing various taxation injustices frequently experienced by developing countries.
She argues that the UN Global Tax Convention is vital for tackling economic inequality.
“Developing countries often struggle to enforce their tax rights due to prevalent tax avoidance practices,” Meliana explained during an online discussion hosted by The PRAKARSA on Thursday, November 28, 2024.
Thus, the convention is expected to enhance national tax policies in participating countries and provide a more inclusive alternative to the OECD’s BEPS Framework.
Meanwhile, Tove Maria Ryding, Tax Coordinator at the European Network on Debt and Development (Eurodad), explained that discussions on a global tax convention have been ongoing for nearly a century, tracing back to the League of Nations, the precursor to the UN.
However, progress has been stalled as developed nations prefer to dictate global tax regulations according to their interests, leaving developing countries with no choice but to comply with these rules.
Ryding highlighted that the central debate between developed and developing countries revolves around corporate taxation. Developed countries want multinational corporations to pay taxes solely in the countries where their headquarters are located, while developing nations insist that taxes should be paid in the countries where economic activities occur.
“This is primarily because many multinationals are headquartered in developed countries,” she added.
The issue has worsened with the rise of tax havens, where many multinational corporations relocate their headquarters to countries with little to no corporate taxes.
“This is why numerous multinational companies enjoy very low effective tax rates, often less than 1%,” Ryding explained.
She emphasized that the UN Global Tax Convention must serve as a turning point for a fairer system.
Ryding warned that if the global tax system remains unchanged, developing countries will continue to struggle to fund their programs and will remain reliant on debt.
Key Developments
The approval to initiate negotiations on the Global Tax Convention was made during the 79th session of the UN General Assembly on Wednesday, November 27, 2024.
Nigeria, representing the African Group, proposed a draft titled “Promoting Inclusive and Effective International Tax Cooperation at the United Nations.” The UN Second Committee (Economic and Financial) endorsed Nigeria’s proposal.
During the vote, 125 countries supported the resolution, while 9 opposed it (Argentina, Australia, Canada, Israel, Japan, New Zealand, South Korea, the United Kingdom, and the United States), and 46 abstained.
Under the draft, an intergovernmental negotiation committee will convene in 2025, 2026, and 2027 for at least three meetings to discuss the convention. The first meeting is scheduled for February 3–6, 2025, in New York, where the committee will begin drafting the UN Framework Convention on International Tax Cooperation.
UN Objectives
The UN emphasizes that the Global Tax Convention aims to assist countries worldwide in enhancing economic growth.
UN Under-Secretary-General for Economic and Social Development Junhua Li stated that the convention would ensure that large multinational corporations pay their fair share of taxes regardless of their operational locations.
This initiative will enable all countries, especially developing nations, to secure significant tax revenues.
“The livelihoods and futures of billions of people depend on governments’ ability to fund basic infrastructure, education, healthcare, and climate action,” Li said in August, as reported on the UN website.
Source: Bisnis.com