ISLAMABAD: The United Nations has proposed a blueprint for a new universal tax accord, emphasising the necessity of a global tax convention as a historic step towards changing the financial landscape.

The UN’s proposed tax convention represents a significant shift in international taxation, potentially reshaping the structure of global financial systems and impacting the allocation of tax funds for public welfare.

The UN Framework Convention on Internatio­nal Tax Cooperation draft was unveiled during a meeting of the ad hoc committee to draft terms of reference for the convention last week at the UN headquarters in New York.

The draft convention will be further developed by a UN member state-led negotiating committee established by the UN General Assembly. This intergovernmental negotiating committee is scheduled to convene in 2025, 2026, and 2027, holding at least three sessions per year. The committee’s goal is to complete its work and present the final text of the framework convention to the UN General Assembly for review and consideration.

The draft convention says more inclusive and effective international tax cooperation is critical in enabling countries to respond to existing tax-related challenges, from digitalisation to global operations of large multinational enterprises, as well as to mobilise domestic resources and use tax policy for sustainable development.

The draft United Nations framework convention on international tax cooperation has the objective of establishing fully inclusive and effective international tax cooperation in terms of the substance and process; establishing a system of governance for international tax cooperation capable of responding to existing and future tax and tax-related challenges on an ongoing basis; establish an inclusive, fair, transparent, efficient, equitable, and effective international tax system for sustainable development, to enhance the legitimacy, certainty, resilience, and fairness of international tax rules, while addressing challenges to strengthening domestic resource mobilisation.

According to the draft convention, efforts to achieve the objectives of the framework convention should be universal in approach and scope and should fully consider the different needs, priorities, and capacities of all countries, including developing countries, in particular countries in special situations; recognise that every member state has the sovereign right to decide its tax policies and practices, while also respecting the sovereignty of other member states in such matters; in the pursuit of international tax cooperation be aligned with states’ obligations under international human rights law; and contribute to achieving sustainable development by ensuring fairness in allocation of taxing rights under the international tax system.

The draft convention called for fair allocation of taxing rights, including equitable taxation of multinational enterprises; addressing tax evasion and avoidance by high-net-worth individuals and ensuring their effective taxation in relevant member states; international tax cooperation approaches that will contribute to the achievement of sustainable development in its three dimensions, economic, social and environmental, in a balanced and integrated manner; effective mutual administrative assistance in tax matters, including with respect to transparency and exchange of information for tax purposes; addressing tax-related illicit financial flows, tax avoidance, tax evasion and harmful tax practices; and effective prevention and resolution of tax disputes.

Published in Dawn, August 25th, 2024