UN Convention on Tax: What happened at recent negotiations, and what’s next?

Negotiations have officially begun for the United Nations (UN) Framework Convention on International Tax Cooperation. The convention aims to create a system of international tax cooperation to close gaps in existing tax systems that prevent many countries from collecting much-needed tax revenues.

We take a closer look at what happened and explore how the UN Framework Convention could effectively address the challenges faced by developing countries.  

What Happened at the Latest UN Tax Negotiations?  

Majority Voting Where Consensus Fails for Future Decisions  

Negotiators debated the decision-making threshold, focusing on how to move forward when consensus couldn’t be reached.  

The African Group, led by Nigeria, Ghana, Kenya and other supporters, pushed for majority voting to ensure faster and more decisive action, after years of frustration with the slow pace of negotiations in the current international tax system. They advanced that a voting system based on consensus left too much room for obstruction, especially from developed countries.  

Developed countries, especially the European Union (EU), advocated for consensus decision-making, emphasizing its role in preserving national sovereignty. They also argued that it would be essential for achieving universally accepted agreements that could be successfully implemented by a broad range of countries, warning that without consensus, the resulting agreements might face significant challenges in gaining full commitment and implementation globally.  

The outcome was a hybrid approach: two-thirds majority voting for substantive issues and simple majority voting for non-substantive procedural matters when consensus fails. Reaching consensus will be challenging, as demonstrated by the United States' withdrawal from the process and dissenting views to the results of this organizational session. Nevertheless, securing a compromise on decision-making processes marks an important step forward. 

Tax Dispute Resolution Chosen as the Focus of the Second Early Protocol of the Convention  

The second key decision was on the subject matter of the second early protocol of the UN Tax Convention. The Terms of Reference had already identified the taxation of income derived from the provision of cross-border services as the subject of the first early protocol. Whilst the taxation of the digital economy may have seemed a natural companion to the first early protocol due to the linkages between the two subjects, it appeared from discussions that most countries found the separation of the two topics to be superficial in nature. This opens the possibility that countries will now attempt to address the taxation of cross-border services and the digital economy in a single effort as far is practicable.  

Discussions on the range of options laid out in the Terms of Reference resulted in two front runners being identified: taxation of high-net-worth individuals and dispute prevention and resolution. Of the two, the latter garnered more widespread support, often being described as the least contentious topic. Delegates recognized that an effective tax dispute resolution system was necessary for the Convention to function effectively.   

Tax dispute prevention and resolution are critically important to levelling the playing field between developed and developing countries, where conflicts over cross-border taxation have become more frequent and complex. Many developing countries lack the infrastructure and resources to resolve these disputes effectively, often leading to long delays, costly litigation, and lost tax revenues.  

Current efforts to resolve tax disputes are often seen as burdensome, due to high costs, weak enforceability, and a shortage of tax-specialized arbitrators. This is the case of the Double Taxation Agreement (DTA) Mutual Agreement Procedures (MAP) which are underutilized, especially by developing countries. The same issues apply to mandatory bilateral arbitration. Meanwhile, tax-related investor-state dispute settlement (ISDS) cases’ are rising, and may be seen as a route for investors seeking more favorable rulings than those available through MAP procedures. 

The UN Tax Convention presents an opportunity to establish a comprehensive and equitable dispute resolution system, one that could complement existing national and bilateral frameworks while addressing the gaps in the current fragmented approach. 

How Can the UN Framework Convention on Tax Effectively Address Challenges Faced by Developing Countries?  

The UN Tax Convention presents a crucial opportunity to address long-standing challenges faced by developing countries through a multilateral platform. The following examples show how the convention can drive significant progress and create lasting change: 

1. Taxing the Digital Economy: The taxation of the digital economy has become urgent, as operations with little or no physical presence risk being left untaxed in source jurisdictions. To capture lost revenue, some countries have implemented Digital Service Taxes (DSTs), but the United States, home to many major tech giants, has opposed these measures, perceiving them as discriminatory. The OECD Inclusive Framework proposed a multilateral solution through introducing Amount A, but progress has stalled. In addition, revenue estimates from the South Centre and the West African Tax Administration Forum suggest developing countries stand to gain more from DSTs than Amount A. Current unilateral, bilateral and multilateral solutions have not resolved the matter. The UN Tax Convention is uniquely positioned to simplify and strengthen the digital economy tax framework. 

2. Tackling Illicit Financial Flows (IFFs): IFFs, which include corruption, tax evasion, and money laundering, drain an estimated USD $1 trillion annually from developing countries. To reduce the amount of money lost to IFFs, the Convention could establish a global definition of IFFs, create a regulatory baseline to target enablers of these flows, and introduce mechanisms like a global asset register to track and prevent illicit transfers.  

3. Addressing the Wealth of the Global Elite: HNWIs often move wealth to low-tax jurisdictions, reducing the tax burden in their home countries and depriving them of billions in revenue. The International Centre for Tax and Development highlights that stronger tax enforcement on the wealthy in low-income countries could significantly boost revenue and reduce inequality. A global minimum wealth tax, coordinated through the UN Tax Convention, would not only increase the revenue potential of developing nations but also contribute to fairer global wealth distribution. 

4. Environmental Taxation and Climate Financing: With the rising urgency of climate change, developing countries need innovative revenue sources to finance climate action. Environmental taxes, like those on fossil fuel production, aviation, and shipping, could provide a vital source of revenue. The convention could help align global tax systems with environmental goals, allowing developing countries to increase their tax base while addressing climate change and building a more sustainable future.  

In each of these areas, the UN Tax Convention has the potential to be a transformative force for developing countries. Our upcoming research, set for release in March 2025, will provide negotiators with a detailed analysis of these topics, highlighting potential revenue gains, past efforts, existing gaps, and actionable recommendations for shaping the Convention.  

What's Next for Global Tax Cooperation?  

Looking ahead, the negotiators to the UN Tax Convention will convene for additional rounds of negotiations in at least three sessions per year in New York or other UN locations, with the goal of finalizing the convention and its protocols by 2027.   

Concerns from both the Global South and Global North over decision-making processes highlight the need for trust-building between regional groups and finding common ground that balances multilateral goals with the interests of individual states. The success of these negotiations will depend on the political will of all nations to balance ambition with practicality, shaping a UN Tax Convention that promotes fairer global tax cooperation, with real benefits for developing countries.