UN GLOBAL TAX TREATY

• The global tax landscape is undergoing a significant transformation with the emergence of the UN Global Tax Treaty, a proposed multilateral convention under the United Nations aimed at reforming international tax rules. 
• For decades, global tax policy has been dominated by the OECD, often criticized for reflecting the interests of advanced economies. 
• The UN initiative marks a shift towards a more democratic, inclusive, and development-centric tax architecture—particularly beneficial for the Global South.

Background and Context

• The UN General Assembly, in November 2023, adopted a resolution to negotiate a UN Framework Convention on International Tax Cooperation.
• This move stems from the limitations of the OECD-led framework and its inability to adequately represent developing nations.
• It aligns with the Addis Ababa Action Agenda (2015) on Financing for Development, emphasizing domestic resource mobilization and fair global taxation.

Key Objectives of the UN Global Tax Convention

• Promote Inclusive Tax Governance:
  • Equal participation of all 193 UN member states in setting international tax norms.
• Combat Tax Avoidance and Evasion:
  • Address base erosion and profit shifting (BEPS), illicit financial flows, and tax havens.
• Enhance Tax Transparency:
  • Promote exchange of tax information and cooperation between jurisdictions.
• Support Digital Economy Taxation:
  • Develop fair rules to tax profits from digital services and remote operations.
• Empower Developing Countries:
  • Strengthen domestic revenue mobilization and technical capacity for tax administration.

Key Commitments under the Convention

Importance for Developing Countries

• Equal Representation: UN offers universal membership unlike OECD’s limited composition.
• Simplified Tax Framework: Reduces the complexity of bilateral tax negotiations.
• Revenue Mobilization: Helps recover billions lost annually to illicit financial flows (UN estimates over $500 billion loss).
• Digital Tax Justice: Addresses challenges of taxing MNCs with no physical presence.

India’s Position

• India has welcomed the UN-led tax treaty initiative and is likely to be a key player in the negotiations.
• It has previously criticized the OECD’s Pillar One and Two frameworks, citing concerns over revenue sharing and digital taxation.
• India’s proactive stance includes:
  • Equalisation Levy (for taxing digital services),
  • GAAR (General Anti-Avoidance Rules),
  • APA/MAP frameworks (Advance Pricing Agreements and Mutual Agreement Procedure).

OECD v/s UN

Other Global Initiatives in Tax Governance

OECD/G20 Inclusive Framework on BEPS

• 147 member jurisdictions including India.
• Two-Pillar Approach:
  • Pillar One: Reallocation of taxing rights to market jurisdictions.
  • Pillar Two: Global Minimum Tax (15%) for MNEs.

Global Minimum Corporate Tax (GMCT)

• Ensures MNCs pay at least 15% tax in each jurisdiction.
• Reduces incentives for profit shifting to tax havens.

Multilateral BEPS Convention (2017)

• India is a signatory.
• Updates bilateral tax treaties to incorporate anti-abuse measures and transparency standards.

Challenges Ahead

Way Forward

• Strengthen UN Tax Committee: Upgrade it to an intergovernmental negotiation body.
• Technical Assistance: Build capacity in Least Developed Countries (LDCs) for implementation and compliance.
• North-South Dialogue: Create synergies between OECD and UN efforts to prevent duplication and friction.
• Regional Cooperation: Use forums like BRICS, African Union to push unified positions by developing countries.