President Trump’s sword of chaos, in relation to global diplomacy and trade, has been much discussed in recent weeks. But there is another area where he is attempting to impose his “might is right” doctrine which has not got as much coverage.

An area which, arguably, is equally as significant in the long term. This area is global taxation policy. As a topic you might understand why it slips under the radar! Whilst it may not set the pulse racing, nevertheless, a major initiative at the United Nations (UN) relating to this aims to address a whole series of problems with the current mechanism used to structure and manage international taxation. It impacts on relations between and within nation states and involves many billions of $s per annum currently being avoided in tax.

At the beginning of February, this year, negotiations began on the UN Framework Convention on International Tax Cooperation. (UNFCITC)The only nation to object to the start of the negotiations was the United States who walked out and encouraged delegates from other nations to do the same. No other nations did, which leaves the US isolated and no longer with a voice in the negotiations. Which may prove to have been a mistake.

The UNFCITC is the culmination of a process which started it’s journey in the UN in 2022. It originated in the actions of the The African Group. This is one of the geographical areas that member states of the UN are grouped into to facilitate voting concerning various UN agencies and bodies. The representative from Nigeria proposed a resolution which aimed to shift the responsibility for global taxation policy from the The Organisation for Cooperation and Development (OECD) to a new body at the United Nations.

Why did they want to do this? In essence because the OECD, which was set up in 1961 by a number of predominantly Western European nations does not effectively represent the interest of all the members of the UN. There are criticisms that the membership is really a club of the wealthy whose principal objective is to protect the interests of its members. Not to establish a just and fair framework of international taxation. The members are overwhelmingly European states, white state, and many with a history of colonialism. There are no African members of the OECD. It is argued that the rules it established and maintains for international taxation are structured to favour the developed nations over developing ones. There are a variety of ways in which this is done but one of the most significant is the agreement allowing the point at which multinational companies are taxed to be their Head Office which they may locate anywhere.

This means that vast amounts of sales revenues can be generated in developing countries (and developed for that matter) and none of the profit associated with this has to be taxed in that country. This means there is a net outflow of wealth from developing nations mainly to the developed but also a net reduction in the in the total tax that should be paid. This is what prompted the race to the bottom in corporate tax rates as countries vied with one another to attract corporate HQ’s. By reducing its rate of corporation tax Ireland was able to become the preferred location of corporate headquarters of many global companies.

The initial resolution from the African states, supported by the G77, essentially called for the UN to begin a formal process to investigate the benefits that might accrue from having a UN based organisation to set international taxation policy. Whilst many opposed this idea, notably the US and the UK, the political machinations of the voting process meant that the proposal was not formally opposed. Which meant it was adopted unanimously by the General Assembly.

The next step in this story occurs in December 2023. The UN then considered a motion entitled: “Promotion of Inclusive and Effective International Tax Cooperation at the United Nations”. This time the opposition was beginning to break cover. This meant that the motion went to a vote. This produced the following: In Favour 125; Against 48; Abstentions 8. A landslide of General Assembly members in favour of taking forward the proposal from exploration to promotion of shifting global taxation management from the OECD to the UN.

There were a number of wrecking amendments but these were all defeated by substantial majorities.

The next step forward was in November 2024 when a UN Draft Convention on tax was produced. This pretty much contained everything the proposers could have hoped for. The objectives of the draft set out to create a fully inclusive and effective mechanism for international tax cooperation. Further that this was delivered by an organisation operating under the auspices of the UN. It also establishes principles that the international tax system should be aligned with state’s obligations under: international human rights law; sustainable development goals; environmental issues; and above all fairness. There is also a specific commitment to address the abuses related to high-net-worth individuals tax affairs.

The kinds of issue it may address include: Automatic Exchange of Information, where the financial activity of individuals and businesses in a country they are not resident or based is automatically shared with the country in which they are resident or based; Country-by-Country Reporting, forcing businesses to disclose the scale of their activities and thus level of revenue and profit they generate in each country the operate; Tax Havens or Secrecy Jurisdictions currently provide cloaks of anonymity shielding corporate and high net worth individuals from paying the taxes for which they are liable. Requiring countries to support registers of beneficial owners. In other words, registers of the flesh and blood beneficiaries of complex trusts and a variety of other financial instruments.

There are a host of abuses which need to be addressed but above all is the need to establish a truly representative body of all nations, which can ensure that current abuses are addressed but also ensure that in the long term future abuses can be prevented and a genuinely fair taxation system is established. One which does not advantage some nations at the expense of others.

Huge progress has been made on this issue and there seems to be a substantial majority of the UN General Assembly’s members who are in favour of the establishment of a global tax management system under the auspices of a UN body. Much work remains to be done. It is certain that, as the proposal comes closer and closer to being realised the forces opposed to it will focus their efforts more intensely and attempt to bring pressure to bear on the nations that support the proposal.

The achievements to date give reasons to be hopeful. They should be seen as part of a changing international landscape. One in which developing nations are beginning to challenge the international network of global organisations established by the victors of World War Two (WW2). Victors who were or had been imperial powers keen to create institutions and conventions which maintained for them a systemic advantage over former colonies and other developing nations.

This can be seen as another example of the old, post WW2, order breaking down. It is, however, a piece of good news in a depressing global environment. We should cling to it and support it.

The information in this article is taken mainly from blogs produced by the Tax Justice Network. If you are interested in tax justice I strongly recommend the site as a source of information about current tax avoidance practices and wider abuses of the tax system. It also sets out practical ways in which tax systems in individual countries, and globally, can be improved.